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By Rudy Mezzetta |May 28, 2024
2 min read
News and resources for Canada's top financial advisors
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(November 2005) I was thumbing through an interesting little book on charitable giving the other day (Philanthropy Heirs and Values, by Roy Williams and Vic Preisser) when I came across a shocking statistic. Approximately 70% of estates fail in the years after passing to the next generation. That’s right, 70%.
Now, the authors define failure rather broadly — an estate “fails” if heirs involuntarily lose control of transferred assets through any combination of poor investment management, dissipation through legal wrangling or inter-heir disputes, inattention, or lack of preparation, etc. And thankfully, Williams and Preisser note that professional oversight or error was rarely the cause of these failures, amounting to about 2% of all estate failures.
Even so, a 70% failure rate is something professionals should be ashamed of. As a trusted advisor, I have a duty to do everything in my power to make sure my high-net-worth (HNW) clients leave the legacy they want to leave for the next generation.
Of course, state planning is an intensely personal process. As advisors, we can motivate, suggest, encourage, direct, instruct, persuade, even beg clients to do the right thing, but at the end of the day, the final decision rests with the client. If the client insists on making a bad estate planning decision, there’s only so much we can do.
Maybe so. But that doesn’t mean financial professionals should simply admit defeat. Here is a checklist that will help ensure your clients’ estate plans aren’t included in that 70% failure rate.
- Have you helped the client write a formal estate planning goals or charitable values statement?
An effective estate plan starts with a formal declaration of what the client is trying to accomplish. This document can function as a “road map” in the case of client disputes, and can help get a procrastinating client back on track to completing an estate plan.
- Have you taken the client through an estate planning process?
Effective estate plans follow a clearly defined process, from step to step until completion. This results in a clear, coordinated plan that demonstrates a consistent purpose, and deals with the various aspects of the client’s wealth in its entirety.
- Have you encouraged an honest discussion of estate planning goals between client generations?
As a trusted professional, you need to encourage your HNW clients to discuss their estate goals with their heirs. Even if the heirs won’t like the decisions the client is making, advance notice will almost certainly help diffuse conflict and give the client time to address family squabbles directly.
- Have you asked the client to explain roles and responsibilities to heirs?
If the estate involves a family trust or charitable foundation, all stakeholders need to be informed of how things will work. Not only will this smooth the transfer of wealth from one generation to the next, it is an excellent way to introduce yourself to the next generation of HNW clients.
- Have you installed a mediation or resolution process within the estate plan?
Despite our best efforts to the contrar y, some client families will disagree about the distribution of wealth. Which is why it’s critical that HNW estate plans contain some provision for conflict resolution. In the event of disputes or disagreements among heirs, this resolution process should prescribe formal avenues for resolving disputes, without having to challenge the estate in court.
Depending on your relationship with the family, you may want to offer yourself as a go-between or counsellor in the event of a dispute. Or you might want to suggest some kind of formal mediation process through a professional mediator. Whatever your client decides, it will save heirs money and hassles, and potentially keep the family from breaking apart over a money dispute.
This article originally appeared in Advisor’s Edge Report. Thane Stenner, CIM, FCSI, is a First Vice President and Investment Advisor with the T. Stenner Group of CIBC Wood Gundy. The views of the author do not necessarily reflect those of CIBC World Markets Inc. This article is for information only. CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of Canadian Imperial Bank of Commerce and member CIPF. Thane can be reached via email at thane.stenner@cibc.ca, or visit his website at www.thestennergroup.ca.
(10/26/05)
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(November 2005) I was thumbing through an interesting little book on charitable giving the other day (Philanthropy Heirs and Values, by Roy Williams and Vic Preisser) when I came across a shocking statistic. Approximately 70% of estates fail in the years after passing to the next generation. That’s right, 70%.
Now, the authors define failure rather broadly — an estate “fails” if heirs involuntarily lose control of transferred assets through any combination of poor investment management, dissipation through legal wrangling or inter-heir disputes, inattention, or lack of preparation, etc. And thankfully, Williams and Preisser note that professional oversight or error was rarely the cause of these failures, amounting to about 2% of all estate failures.
Even so, a 70% failure rate is something professionals should be ashamed of. As a trusted advisor, I have a duty to do everything in my power to make sure my high-net-worth (HNW) clients leave the legacy they want to leave for the next generation.
Of course, state planning is an intensely personal process. As advisors, we can motivate, suggest, encourage, direct, instruct, persuade, even beg clients to do the right thing, but at the end of the day, the final decision rests with the client. If the client insists on making a bad estate planning decision, there’s only so much we can do.
Maybe so. But that doesn’t mean financial professionals should simply admit defeat. Here is a checklist that will help ensure your clients’ estate plans aren’t included in that 70% failure rate.
- Have you helped the client write a formal estate planning goals or charitable values statement?
An effective estate plan starts with a formal declaration of what the client is trying to accomplish. This document can function as a “road map” in the case of client disputes, and can help get a procrastinating client back on track to completing an estate plan.
- Have you taken the client through an estate planning process?
Effective estate plans follow a clearly defined process, from step to step until completion. This results in a clear, coordinated plan that demonstrates a consistent purpose, and deals with the various aspects of the client’s wealth in its entirety.
- Have you encouraged an honest discussion of estate planning goals between client generations?
As a trusted professional, you need to encourage your HNW clients to discuss their estate goals with their heirs. Even if the heirs won’t like the decisions the client is making, advance notice will almost certainly help diffuse conflict and give the client time to address family squabbles directly.
- Have you asked the client to explain roles and responsibilities to heirs?
If the estate involves a family trust or charitable foundation, all stakeholders need to be informed of how things will work. Not only will this smooth the transfer of wealth from one generation to the next, it is an excellent way to introduce yourself to the next generation of HNW clients.
- Have you installed a mediation or resolution process within the estate plan?
Despite our best efforts to the contrar y, some client families will disagree about the distribution of wealth. Which is why it’s critical that HNW estate plans contain some provision for conflict resolution. In the event of disputes or disagreements among heirs, this resolution process should prescribe formal avenues for resolving disputes, without having to challenge the estate in court.
Depending on your relationship with the family, you may want to offer yourself as a go-between or counsellor in the event of a dispute. Or you might want to suggest some kind of formal mediation process through a professional mediator. Whatever your client decides, it will save heirs money and hassles, and potentially keep the family from breaking apart over a money dispute.
This article originally appeared in Advisor’s Edge Report. Thane Stenner, CIM, FCSI, is a First Vice President and Investment Advisor with the T. Stenner Group of CIBC Wood Gundy. The views of the author do not necessarily reflect those of CIBC World Markets Inc. This article is for information only. CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of Canadian Imperial Bank of Commerce and member CIPF. Thane can be reached via email at thane.stenner@cibc.ca, or visit his website at www.thestennergroup.ca.
(10/26/05)
