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Wealth, Legacy, and the Next Generation

They grew up with Woodstock and the civil rights movement, and now they’re the wealthiest generation in history. With $30 trillion in play, the boomers’ financial planning choices could change the course of it.

CONTENTS:

How to Prepare a Meaningful Wealth Transfer Plan

Planting Resilient Roots: A Q&A with the Benziger Family

Exploring Family Legacy with Alexandra Cousteau

When music legend Prince died last year, it shocked fans around the world. And as time went on, another shock emerged: The multimillionaire had no will in place. As it turns out, this baby boomer wasn’t unique in his lack of preparation: In a recent RBC Wealth Management* survey of high-net-worth individuals, only 54 percent of respondents said they have a will. And while 26 percent said they have a full wealth transfer plan in place, a surprising 32 percent said they had done nothing to prepare yet.

These numbers become increasingly relevant as you consider that we’re on the brink of a historic transfer of wealth: As the wealthiest generation in U.S. history ages, it’s estimated that some $30 trillion will be passed to the next generation in the coming decades. So what’s the holdup in preparing for that transfer?

One reason, among many, may be that in this age of baring all on social media, there are still certain topics that aren’t discussed in polite society, and money and death are high on that list.

“Most of the family wealth will go to the wife before it gets passed on to the next generation.”
Angie O’Leary, head of wealth planning for RBC Wealth Management, noting the general trend of women outliving their husbands by an average of five-plus years.

“For the boomer generation, you didn’t talk about money—money was generally a taboo topic—so I think that’s still playing into the culture,” says Angie O’Leary, head of wealth planning for RBC Wealth Management. “Also, when you talk about wealth transfer or estate planning, a lot of people think that’s not for them, that they don’t have that level of wealth. We try to educate that everybody has an estate, no matter how small, and everyone should have the basic documents in place and have thought through their estate plan.”

Women, in particular, need to be prepared as they are poised to receive the majority of this upcoming wealth transfer.

While the RBC study found that women are very involved in family money decisions, only 22 percent of those surveyed said they have a full wealth transfer plan in place (while 30 percent of men said the same), which clearly leaves room for improvement. Male or female, boomer or millennial, it’s important to be informed about estate planning.

3 Ways to Avoid Common Estate Mistakes

HOW TO PREPARE A MEANINGFUL WEALTH TRANSFER PLAN

Think values, not just dollars.

Ultimately, wealth transfer is about more than dollars; it’s about your family legacy. What do you want that legacy to be? Think big picture, considering family values, traditions, and hopes for the future. Do you want your children to have the freedom to use the money however they please? Is there a charitable cause you feel particularly passionate about? For example, if education is a significant value, you might create 529 plans for your grandchildren. “It’s about imparting your philosophy on how best to build, protect, and preserve wealth over a lifetime,” says Thomas Sagissor, president of RBC Wealth Management-U.S. “It’s about passing along your beliefs on the role money plays in life, in your family, and in your community. In short, it’s about legacy.”

Clarifying your values and goals can also be helpful for the next generation, particularly if inheritors feel unprepared or overwhelmed. O’Leary points to the example of a client who had received a sizeable inheritance six months earlier and didn’t know what to do with it.

“She wasn’t ready to invest it, because she wanted to do something meaningful with it that honored her parents. She was almost paralyzed in her decision-making while the dollars were sitting in a checking account,” says O’Leary. “Some people, when they inherit wealth, have a hard time thinking about what they should do with that wealth, so it can be a nice touch if there is a value message given with it.”

Take stock of your situation.

Before you gift to the next generation, it’s important to feel confident you’ll have what you need for your own lifetime. RBC’s recent study found that women in particular tend to be more mindful about this. “They’re usually more benevolent but are reluctant to gift larger sums while living unless they are confident in their financial situation,” says O’Leary. “I think part of that is them understanding how much they’ll need to fund their full life, especially given that they’ll probably outlive their husbands.”

To address those concerns, Bill Ringham, vice president and director of private wealth strategies at RBC, likes to do a retirement analysis at the start of wealth transfer planning. “If you’re thinking about doing lifetime gifting on an annual exclusion basis, we’d first recommend a retirement plan with and without gifting to see how the annual gifts affect their retirement cash flow. That often frees individuals up to feel more comfortable about starting a lifetime gifting technique versus waiting until they pass away.” It’s also good to look at what kinds of assets you have—from vacation home to appreciated stocks—as all of that will come with different tax and estate intricacies.

“If kids suspect that they might inherit something anyway someday, you should start having those family conversations earlier rather than later.”
Bill Ringham vice president and director of private wealth strategies at RBC Wealth Management

Consider charitable giving.

Leaving a family legacy might also include gifting money away from the family itself. There are charitable giving options to fit every intention, asset, and tax consideration, from outright donations of money or appreciated stock (so you don’t have to recognize capital gains) to placing assets in a donor-advised fund to give over time, or creating a private foundation with a board of trustees and grant requests. This can also be a great way to get your children involved in conversations about family finances and values. “I love the concept of parents or grandparents creating donor-advised funds or private foundations, and then having a family meeting where kids and grandkids might be given different dollar amounts they can gift to a charity,” says Ringham. “It gives the family an opportunity to sit around the kitchen table and hear what charitable organizations are important to their family members and why.”

Decide now versus later.

Clarifying your financial picture and values will also help inform the question of how and when to gift—for example, whether you gift upon death versus set up annual gifting while you’re alive or put money in a trust for your beneficiaries to receive at certain ages when you feel they’re ready for it.

Gifting during your lifetime has both pros and cons, of course. There are tax benefits to consider, plus that already-mentioned worry that you might run out of money for your own retirement. But there’s also the emotional enjoyment you might receive from seeing your kids get a financial boost that helps them buy their first home, start a business, or plan their wedding. Gifting while you’re alive can also provide greater opportunity for mentoring. One common approach, says Ringham, is parents helping their kids set up an account with the parents’ financial advisor, who helps manage the assets the parents then start gifting. This gives the kids a chance to work with a professional advisor on the ins and outs of investing and offers parents an opportunity to see how their kids relate to the money. “Think of how much more comfortable Mom and Dad will be to leave their estate when they pass if they’ve seen how their children handle this money during their lifetime,” says Ringham.

How Confident Are You In Your Children?

Don’t ignore family dynamics.

There isn’t a one-size-fits-all approach to generational wealth transfer, as illustrated in another RBC study, so explore what makes sense for you and your uniquely wonderful (and perhaps occasionally maddening) family. Are there any special situations to consider? “In my case, I have a son who has Type 1 diabetes, so we want to make sure he always has access to health care or funds for his health, and that’s a different need than our other children have,” says O’Leary. “We’ve talked to our kids about how that’s something he will probably need moreso than the others.”

Or there may be complex family dynamics when it comes to passing down property that has sentimental value—like a summer home or other vacation property. “I always say the first question you should ask is whether or not your kids all have the same philosophy regarding the property,” says Ringham. “You might have three kids: one who loves it but can’t afford the upkeep, the other one can afford it but doesn’t love it, and so on.” There are different options depending on how you and your children want to relate to the property, from gifting outright to putting the property in a trust with dollars to support the maintenance of it, or setting up a qualified personal resident trust where you pick the term of years you live there before it transfers to your kids. Ultimately, you want your legacy to enhance your kids’ lives rather than create strife, and smart planning and communication can help avoid conflicts or misunderstandings down the road. “A lot of these topics are emotionally charged topics for families to work with, and having a third-party person involved can help with that,” says O’Leary

Recruit your team of experts.

Which brings us to an important point: When navigating the intricacies of wealth transfer (estate tax liability, gift tax exemptions, cost basis, and step-ups, oh my!), a knowledgeable financial advisor can come in very handy, helping you to feel more confident and fill gaps in your own knowledge. Ringham recommends taking a holistic approach so nothing gets overlooked. “Our philosophy is to make sure we’re incorporating [a client’s] team of advisors—and by that I mean their tax person, whether it’s a CPA or a tax preparer, and/or attorney,” he says. “If everyone’s on the same page, the client’s goals and objectives are met more efficiently, everyone understands what’s going on, and there are no surprises.”

Millennials and Money

Mind the generation gap.

Another important consideration is your children themselves, including when and how to talk to them about all of this. This is another time when a trusted financial advisor can be helpful, in mentoring and facilitating family meetings that might feel difficult or taboo to have on your own.

RBC’s research agrees with that, showing that the earlier financial literacy education starts in general, the more confident inheritors feel in managing what they receive. Recent research showed 66 percent of those starting before age 18 as confident in their grasp of financial matters, versus 58 percent who started between 18 and 35, and only 41 percent for those who learned later. On average, respondents said structured financial education was beginning at age 27, which points to room for growth and earlier education efforts.

Advisors suggest families start with age-appropriate lessons at different developmental points and life-stage events. For example, you can introduce basic ideas of saving-giving-spending when kids are young, talk taxes around first jobs, and delve deeper into budgeting as kids prepare for college.

With four boys, Sagissor has had plenty of personal experience with the money talk and different ways of teaching financial lessons, from allowances to opening bank accounts to using credit wisely. Through it all, he shared his own guiding financial principle—spend your money where you spend your time, aligning your assets with what matters to you.

“No matter your net worth, you can leave a financial legacy to your children, and that legacy can have an incredible impact on their financial future,” says Sagissor. “I know families who didn’t have a lot of extra money who taught their children the value of saving every penny they earned and never spending more than they have—which is creating a financial legacy. Those children didn’t inherit a dime from their parents, but they became the benefactors of something much more valuable: a solid understanding of how to be good stewards of whatever wealth they would create in their lifetimes.”

And, in the end, isn’t that what we’d all hope for?

“Families that transfer their knowledge before their wealth not only build more confidence among members of the next generation, they have a greater chance of creating a lasting financial legacy,”

CONTENTS:

How to Prepare a Meaningful Wealth Transfer Plan

Planting Resilient Roots: A Q&A with the Benziger Family

Exploring Family Legacy with Alexandra Cousteau

Planting Resilient Roots: A Q&A with The Benziger Family

In 1980, 13 members of the Benziger family uprooted from New York to Sonoma, California, to follow a family dream. The now-world-renowned Benziger Family Winery was a small business at the start, with three generations living together and building the winery from the ground up. We talked to two generations of Benzigers about their secret to creating an enduring legacy.***

There’s an old adage: “Shirtsleeve to shirtsleeve in three generations,” meaning it typically takes three generations for a family to build up and then spend all the family fortune—with a similar trend for family businesses. Why do you think your family business has been so successful?

Mike Benziger, 2nd generation: Most small family businesses are so focused on being successful on a day-to-day basis that they never really think about these things. We started succession planning about 10 or 12 years ago, because we saw that it was important early on to prepare the next generation to not just be successful winery operators but to do anything they wanted to do. We put together a family constitution that outlined what we call the “flaming hoops.” It also outlined conflict management and how we would make amendments to the constitution.

Tell us more about the flaming hoops.

Erin Benziger-Weiswasser, 3rd generation: The flaming hoops was a system put in place for the third generation to work their way up and be able to either come back to work for the family or work in another industry. The beginning step was to graduate from college or technical school, and then come back and be in a formal internship program. The second hoop to jump through was to work outside the company. The next steps were coming back to work within the family business, but in a market outside of California. At that point, if you wanted, you could interview for a position based in the winery in Sonoma. You never had a guarantee because your last name was Benziger—you had to work and prove yourself.
Chris Benziger, 2nd generation: Nepotism is the fastest death to a family business. If a family member gets promoted who doesn’t
deserve it, then all your talented employees are going to leave.

What have you learned about how legacy can transcend wealth?

Mike: One of the things we worked hard on as a family is that money is not our idea of legacy. Our idea of legacy was to build this concept of service and sacrifice for the community and for our employees, and to be able to give back—not just by giving money but giving time and creating good energy. We’ve also always instilled a strong legacy of love of the land that was important for the next generation to honor and carry forward.
Mike Benziger walking with his granddaugther.
The family in California in the early years.

Your winery eventually became an industry leader in biodynamic growing, which is a regenerative approach that strengthens the land for years to come. How does that approach relate to the way you run your family business?

Mike: Biodynamics didn’t stop for us in the field, it also became a backbone of the way we managed our company. One of the first things we did in the biodynamic process was to make sure we didn’t micromanage.
Chris: Right, we allow people to make mistakes and gain wisdom for making those mistakes, and that’s kind of the biodynamic way. Stumble a few times but you become a much better person.
Mike: That creates resiliency—and one of the most important things in biodynamics with plants is to create resiliency. In the business world, it’s so competitive that unless you have resiliency as a professional, it’s going to be very tough to make it.

What does the idea of leaving a legacy mean to you?

Erin: One of the important things my family legacy has taught me is really the love of the environment, and that’s something I hope to instill in my children.
Chris: Legacy means planting the greatest garden you ever could but not being around to harvest it.
Mike: Just the other day I was with my granddaughter Haley, and we went over to the compost pile and she was so enthralled with all of the activity with the worms and rolypolies. We spent a whole hour talking about this web of nature. You can talk to 3- and 4-year-olds in those terms. They understand it. As long as they’re able to put their hands into something, they’ll remember it forever.

CONTENTS:

How to Prepare a Meaningful Wealth Transfer Plan

Planting Resilient Roots: A Q&A with the Benziger Family

Exploring Family Legacy with Alexandra Cousteau

Exploring Family Legacy with Alexandra Cousteau

Jacques Cousteau was a visionary of his time, and his son Philippe helped carry on his legacy of exploration, ocean conservation, and filmmaking before his early death in a plane crash at age 38. Today, Philippe’s daughter, Alexandra Cousteau, preserves her family’s values through her own work as an environmental advocate, explorer, and storyteller—simultaneously honoring the past while adapting for the future.****

What does legacy mean to you?

To me, the legacy my grandfather left me is the body of work he did in his lifetime and the way it made people feel and contributed to the wellbeing of our oceans. A legacy is the measure of life and how it impacts the people we touch. My grandfather touched hundreds of millions of people around the world, but I think the same is true for each of us—our legacy is what we do every single day.

Yes, so legacy is about more than money—it’s also about values. What values did your grandfather and father pass down to you?

I think curiosity and the courage of your convictions, and to pursue unlikely dreams—to take risks for your ideals and do things for the greater good. My grandfather didn’t do business to get rich. He did it because he was passionate about it and he loved going where no one had been, pushing boundaries, and inventing new things to be able to go deeper and stay longer.

Alexandra Cousteau as a baby with her parents, Philippe and Janice Cousteau
Alexandra Cousteau with her grandfather, Jacques Cousteau
Alexandra Cousteau with her father
Alexandra Cousteau at a recent expedition

What are some childhood memories that helped instill their love for the ocean in you?

I think it was just my grandfather’s boundless curiosity, energy, passion, and creativity. The fact that in his 70s and 80s he was still constantly getting on planes and moving and driven. I’d go visit him at the aquarium in Monaco and we’d spend time looking at fish and feeding them and talking about them. My dad died when I was almost 4, and I spent the first four years of my life on expeditions with the crew, so that’s a part of me. Those first formative years on expeditions with my parents and the crew probably shaped me most. It shaped where I feel comfortable and what I enjoy—I enjoy that life so much.

How did your mother raise you with this family legacy after your father died?

She talked about him a lot and kept his example front and center. He was always present through her. His was the best example we could’ve had on how to be a Cousteau, how to be an explorer, how to be driven by the right things and the important things. We’ve never really been driven by profit. Experiences over things is our mantra. To be rich with experiences.

Have there been family practices in place to guide the Cousteau legacy, or has it been more organic and intuitive?

Everyone’s kind of done it in their own way. If you have a store or a hotel chain or a vineyard, there are certain things that need to be done a certain way for it to work, but there’s no blueprint for the evolving crisis that is the environment. When my grandfather got started, the oceans were still pretty pristine, and today we’re talking about losing all of our corals in 30 years. My father when he died wasn’t really thinking about climate change. So in a way everything has changed—the urgency of the issues, the communication mechanisms and outlets, the political climate. We have to improvise.

What have you learned in this process of carrying forward your family legacy?

The biggest switch for me was having children and projecting into the future about the quality of the environment they’d live in and feeling terrified at times. I realized that the conversation can get so dark that people are tuning it out. So I can either say, OK, I’m going to focus on how the oceans are going to meet their ultimate demise by the end of my life, or I can focus on all of the ideas that actually give us a fighting chance to bring our oceans back.

How does wealth fit in to all this?

I’ve met so many rich kids who are lost in life and unhappy, it’s almost cliché. Wealth does not give you purpose, I think, but wealth can amplify your purpose. Wealth can make it easy for you to have impact. But it can’t just be about tax deductions; it has to come from a place of real commitment. I’ve met very wealthy people who have put their wealth toward creating measurable change in the world. I think wealth is inheritance, and legacy is the part of yourself you leave behind—your soul, spirit, sweat, heart, love, dedication, courage, and example—that’s your legacy, not numbers in a bank.

DISCLAIMERS:

*RBC Wealth Management does not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal advisor.

**This research, designed by RBC Wealth Management and Scorpio Partnership, was undertaken from June to August 2016. The 3,105 participants were independently sourced high-net-worth and ultra-high-net-worth individuals living in Canada, the United Kingdom, and the United States.

***This interview does not constitute an endorsement by the Benziger family of RBC Wealth Management.

****This interview does not constitute an endorsement by Alexandra Cousteau of RBC Wealth Management.

RBC Wealth Management

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