In classic Agatha Christie mysteries, family members gather post-funeral for the reading of the will. The beneficiaries typically have complicated lives, and often the result is murder.
It’s something to keep in mind when writing your own will. Deciding when, how and how much money to leave to children, grandchildren and other family members can have consequences. You might choose to simply leave your wealth outright, trusting that the recipients can handle it at the time of your death. Or you can cautiously set up a trust to dribble it out in lump sums over time.
Possibly with strings attached.
For instance, some people fear they will spoil the grandchildren by giving them too much money too early in life, so rather than giving them $1 million when they turn 18, they require them to earn a university degree first. That seems well intentioned, but it does send a message.
“You want to avoid ruling from the grave, which is essentially what that’s doing,” says Andrew Jeffery, a vice-president at Northwood Family Office in Toronto. “If you want to enact certain behaviours, you need to do the work to get your family’s values in place before you pass away. If you’re trying to do that through the will, it’s probably too late, and will lead to resentment from your children or beneficiaries.”
Jeffery says that Northwood is seeing more clients giving money away while they’re alive—“giving with a warm hand rather than a cold one.” A key benefit: the clients can work with their children and see the benefit of giving them money at strategic points in time.
It’s a milestone approach, releasing funds at significant life stages, Jeffrey explains. “Maybe a third of the amount at age 30, a third at 35 and the final third at 40. But you don’t want to constrain it to specific actions,” says Jeffery. “You hope they get it right, but if they make some poor investments, they have two more thirds still to come.”
Cindy David, president and estate planning advisor at Cindy David Financial Group Ltd. in Vancouver, says attaching strings to your will can do more harm than good.
“This isn’t about absolute control, because you’re dead, so don’t leave behind a headache and create stress and strain in relationships,” David says. “Estate planning can really end family ties. Sometimes your legacy isn’t about the dollar amount, it’s about the memory of you. So how do you want to be remembered?”
Rather than giving your money away in your will, David also encourages doing so during your lifetime, in measured amounts to family and charities so you can enjoy the gift of giving.
“The first step in estate planning isn’t to make a will—the first step is to give your money away,” she says. “Own and control everything that you might possibly need during your lifetime, but everything else is really about estate planning and that transition of wealth.”
How to do ‘strings attached’ properly
Giving large gifts is easy in Canada since we don’t have a gift tax, unlike the United States, which limits tax-free gifts to $18,000 per person annually. Also, in British Columbia, where David lives, real estate has long been important to families, so wealthy clients often help family members with a down payment on a home.
“Don’t attach strings to the gift, but make sure there’s some responsibility that comes with it, such as a mortgage they have to pay,” says David. “It helps build financial responsibility in the next generation. You want to give just enough to make sure they don’t have to ever worry about money, but not enough so they don’t have to work. The kids want to have a sense of pride and purpose in life.”
The No. 1 piece of advice David gives people as they age is to document their wishes by writing them down so people know their intentions. “I’m a big believer in family meetings and open communication, which, for the generation of people that I work with, can be really uncomfortable,” she says.
“They’ve been raised to keep financial things private, so it takes time, years or decades, to get people comfortable with talking about their high net worth. But we have to muscle up and have those uncomfortable conversations.”
Another is to make sure your plans change as you age and as your kids age.
“You have to be careful if someone is a spendthrift or has a drug addiction or there are disabilities,” she says. “Trusts are often considered ruling from the grave, but they are a real necessity in some areas.”
Imagine you will die tomorrow
When people draft wills, they’re often thinking it will be 25 years until they die, Jeffery says. That’s a mistake.
“You’ve got to draft the will under the assumption that you’re going to pass away tomorrow,” he says. “And you need to be thinking about what is the right way to structure things for your children and the beneficiaries tomorrow.
“Really think about what’s going to be best for your children, then figure out the right amount that’s going to be productive for them and the right timing. We pull our clients’ wills out every two years.”
While it’s common to leave the bulk of the inheritance until Mom and Dad pass away, families have options.
“At one extreme, it’s no strings—you just leave it directly to the individuals so the beneficiaries have total access to the capital and can use it how they see fit,” he explains. “The drawback is they may not be ready. The other end is setting up a trust with all these restrictions. If it’s set up while you’re living, you have more control to work with the individual and monitor what’s going on. If it’s after you pass, you’re relying on the trustees to do right.”
Communication is important if you’re setting up a trust for your children. Jeffery advises talking to them about that trust and why it is being used, so there are no surprises or resentments after the fact.
“I caution clients that they and their children need to be ready to have that conversation usually when the kids are in their 20s,” he says. “There are some pitfalls of having it too early. If they find out there’s a large inheritance coming their way, it could demotivate them, but the benefits are that you get to explain why you’re putting the trust in place, how it aligns with the family’s values and why it’s in their best interests.”
Provisions for pets
You might also consider other family members in your estate planning: the furry ones. In Canada, pets are considered property, so you can’t directly make your Pomeranian a beneficiary, but you can create a trust in your will for the benefit of a person whom you entrust to take care of Fluffy.
“In order to ensure the funds are used for their intended benefit, you should make the trustee and caretaker different people so the trustee can enforce the terms of the trust,” advises Andrea McEwan, a partner in the wills, trusts and estates practice group at WeirFoulds LLP in Toronto.
“An alternative is to leave a legacy in your will to the person you have chosen to take care of your pet, on the condition your pet is alive on your death.”
That said, there is no way to enforce this if the person chooses to use the funds for another purpose.
“The best advice,” says McEwan, “is to choose the right person to take care of your pet and have a detailed conversation with them about what that means and how you intend to fund your pet’s care.”
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