High income, no kids: Wealth planning for clients without children

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When Elke Rubach discusses financial planning with clients who have no children, the process is a bit different.

“It’s an open conversation about how much money they need to live,” says Rubach, president of Rubach Wealth Holistic Family Advisors in Toronto. “After all, you can’t take it with you.”

She has three financial options, and she presents them to these clients bluntly: “You can give your money to the Canada Revenue Agency, give it to extended family members or donate it to charity,” says Rubach. “It’s really about empowering the family about what they want to do with their wealth.”

When a high-net-worth family doesn’t have children, the advisor-client dialogue focuses on the goals of the family, what type of lifestyle they’d like to enjoy in their retirement and whether they’d like to give money to extended family members or charities. Through a comprehensive asset management plan, families can ensure their money isn’t overly taxed, is enjoyed by other family members or is used strategically in a philanthropic setting of their choosing.

Advisors need to be open to the various options their clients have to choose from.

“Whatever the person’s reason is, it’s just about being understanding and flexible,” says Steve Ivacko, a partner in MNP’s Family Office Services team in Vancouver.

Determining the why

The first step for a family office advisor is ascertaining a childless client’s goal for asset accumulation.

“What is the purpose of preserving or growing wealth?” says Nancy Marshall, head of family office services at Prime Quadrant, a multi-family office in Toronto. “What is the ‘why?’”

If a client has hundreds of millions of dollars, the conversation isn’t about having enough money in the future — it’s focused on what to do with those assets before they pass away, Marshall says. If clients want to give it to extended family members, they can transfer certain amounts tax-free per year to them, gradually reducing the size of their estate over a period of time.

Some families want to set up a formal or informal trust, Marshall says, with the goal of educating younger family members, for example. But she warns that the structure and administration of a formal trust, which needs to be administered by a trustee, can be onerous and costly. Advisors should make their clients aware of the complexity of these structures and the fees associated with them, she says.

Involving the next generation

In cases where there are no heirs, extended family members can sometimes step up to manage a family’s operations, says Ivacko. One of his clients currently has a niece taking over the family business, with her siblings being looked after financially in an estate plan the family has drafted up.

“People don’t always want to be in business together,” says Ivacko. “But you can successfully build these [elements] into the plan – and people can get what they want.”

Determining the future lifestyle

Rubach says that when she’s drawing up a financial plan with clients, she often asks how they foresee their lifestyle in retirement. They might travel extensively, for example, or spend on clothing, cars, boats or property. Advisors should work with clients to determine how much money will be needed to sustain the chosen lifestyle – and run those numbers for the long term.

At the same time, Rubach says it’s important to address any health issues the family members have, factoring in the future costs of care, both short- and long-term. If clients have multiple chronic conditions and aren’t in good health, their caregiving costs, along with the costs of medications, therapies and treatments, could be significant. These figures need to be factored into the financial picture.

Discussing taxes

Marshall says many of her clients are comfortable paying any taxes owed, but they do not want to make financial decisions that will lead to over-taxation. Many don’t realize that if they and their spouse pass away without a financial plan in place, the government will take half of their assets, she says.

To reduce estate taxes, many of these individuals opt to donate to a charity, either before they pass away or at the time of their passing. Charitable giving can be triggered at death, although the details of a person’s estate need to be drawn up with an advisor well in advance, Marshall advises.

But “if the will is not properly funded, the charitable wishes can be voided,” she warns. To avoid this, she urges clients to communicate their financial situations frequently to their advisor and make them aware of any potential shortfalls.

Pursuing philanthropy

Philanthropy is often the ultimate goal in counselling clients, says Ivacko. Many families choose to donate money when they’ve experienced a liquidity event, such as the sale of their business.

He always encourages clients to research options for giving. “Maybe they want to support a grassroots charity, or a specific cause,” he says. Whatever they decide, advisors need to ensure that clients have their wishes clearly indicated in their will or in a trust.

Rubach urges her clients to consider myriad philanthropic options, from the Humane Society to arts organizations to nature preserves. But she’s also surprised by the number of families that aren’t charity-focused. “Some people are okay giving it to the CRA,” she says. “That’s totally fine — there are no unreasonable goals.”

Whatever a client decides to do, Ivacko says, the key is communicating and documenting their wishes before they pass away. That includes ideally appointing a professional — not a family member — as a trustee, to avoid lengthy family conflicts.

“You don’t want to leave a mess for somebody,” he says. “This way they’ll avoid a lot of stress and legal costs down the road.”

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