Preparing your clients’ children for their inheritance

Like many of your peers, you’re moving upstream from tax prep and financial statements to a more holistic form of planning for your clients. That’s great. Just make sure you don’t overlook your clients’ teenagers and young adult children. Research shows you’ll have a significantly better chance of continuing to work with those families when mom and dad pass, or can no longer handle their financial affairs.

According to the latest Nuveen Wealth Inheritor Research Study, 80% of inheritors who start meeting the family advisor as a child or teen will keep working with the advisor as they get older. If they don’t meet the advisor until they’re adults, the chance they’ll keep working with them goes down to 54%. With an estimated $80 trillion set to transfer between the generations over the next two decades, isn’t it worth getting to know NextGen among your clients?

Holistic tax advisory

By taking a holistic view of your client’s entire financial picture—rather than just with your tax glasses on—you can provide a wide range of wealth management, asset protection, exit planning, and legacy planning services without having to bring all of those capabilities in-house.

Thanks to advances in technology and communication, it’s now easier than ever to do so via the virtual family office model.

Wealth managers have long recognized the value of the holistic approach. However, wealth managers generally don’t start working with people until they have substantial assets to manage or transfer. By contrast, tax and accounting professionals start working with clients much earlier in their wealth building years and have a much more significant impact on their clients’ lives than waiting until clients have built up substantial assets. They intimately know their client’s family situation, values, goals, and concerns. I’ve found this approach is much more rewarding for you, the advisor, and for your clients; it’s about building a better Return on Relationship (ROR) with your clients. More on that in a minute.

So going back to your clients’ children; it’s not enough to help your clients determine the most tax-advantaged way to transfer their assets. We need to prepare young inheritors to receive their windfall and for the responsibility that comes along with it. As record numbers of boomers retire and/or exit their businesses every day, you can’t afford to ignore this responsibility to your clients.

Hope is not a strategy

Anyone who’s a fan of the TV show “Succession” knows how dangerous inherited wealth can be without proper context and training. How do you set up your clients so their inheritance doesn’t disable them? As Warren Buffett famously said, he would give his children “enough money so that they would feel they could do anything, but not so much that they could do nothing.”

“Unfortunately, I’ve found that way too many advisors, including accountants, have little or no relationship with the kids of their clients,” Randy A. Fox, CFP®, AEP, told me on my podcast. “They don’t meet with them. They don’t talk to them. They don’t include them in discussions with the parents. They don’t ask how they can bring the kids in or make them aware of what’s coming or how to make them responsible.”

Fox is founder of Two Hawks Family Office Services, and a nationally known wealth strategist and philanthropic estate planner. Instead, Fox said, parents just drop a large financial windfall in the children’s lap and hope for the best. As the old saying goes: “Hope is not a strategy.”

If families don’t have frank and open discussions with their children about wealth, children can blow all the money or bicker constantly with each other.

“I’m not suggesting advisors must become facilitators or family wealth counselors, but they certainly have the ability to spot the issues,” he said. “It’s up to the advisor to bring issues to the surface, talk to the family openly about them, and bring in a professional facilitator if needed.”

A rock-solid estate plan isn’t enough

For CPAs and tax accountants, it’s not just about getting your clients’ children to stay with you; it’s about getting the children to think about what to do next when it comes to their inheritance.

“When I give talks to advisors, I tell the audience that never in my 40-year career have I heard a family elder say, ’Randy, when I die, I want to be sure my kids never talk to each other again.’”

I know that sounds ridiculous, but imagine what happens when large amounts of inheritance are involved.

I know that sounds ridiculous, but imagine what happens when large amounts of inheritance are involved. Both Randy and I have worked with families in which siblings stop speaking to each other because one took a family portrait the other one wanted, one child got mom’s fine china or jewelry and the other one didn’t, or the siblings living close to their late mother swooped in and took everything out of their parents’ house before the out-of-town siblings could arrive. The situation is likely to get worse when there is less and less communication between family members, and they don’t live near each other anymore.

When it comes to inheritance, children not only need to be prepared to receive it, but should have the ability to voice their concerns and suggest ideas about how their inheritance will be handled. What 22-year-old is ready for $100,000 suddenly in their bank account, let alone several million dollars? Once the money transfers, it’s likely to trigger questions like “what can I buy now?” and “where can I travel next?”

As the Nuveen research showed, nearly seven out of 10 inheritors (69%) who are working with an advisor prefer to oversee some aspects of their financial plan personally. “This underscores the importance of a teaching relationship to support them in making informed decisions,” researchers asserted.

Return on relationship (ROR)

ROR is an important metric for CPAs and other financial professionals who intentionally prioritize the relationship component of the services they provide for clients: The human side of financial advice. ROR is at the foundation of my forthcoming book: “Holistic Guide to Wealth Management: The Science Behind Integrating Services with the Human Side of Behavioral Financial Advice.”

Because you know your clients’ financial situations so well, you’re in a unique position to do that. When you pair a highly skilled wealth receiver with a highly skilled wealth quarterback, there’s no limit to what they can accomplish.

Hey (CPA) coach! That’s where you come in.

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