Podcast Episode 43: Avoiding the Family Feud | Part 2

Continuing from Part 1 last week, we’re still talking about intergenerational wealth transfer. And we’re thrilled to remind you we’re joined again by guest star and long-time friend of WLWP. Brent Vandermeer is a Portfolio Manager at Crosspoint Financial | iA Private Wealth in Ottawa.

Episode Transcript

BARENAKED MONEY PODCAST: EPISODE 43

Avoiding The Family Feud | Part 2

Announcer:
You’re about to get lucky with the Barenaked Money podcast, the show that gives you the naked truth about personal finance. With your hosts, Josh Sheluk and Colin White, portfolio managers with WLWP Wealth Planners, IA Private Wealth. If you haven’t listened to part one yet, go back and start with last week’s episode. If you did listen to part one, and you’ve been waiting with bated breath, the anticipation ends now. Welcome back to the second part of a two-part series featuring special guest Brent Vandermeer, a portfolio manager with CrossPoint Financial, IA Private Wealth.

Colin White:
If you get to a point where you’re diminished capacity and you’re cut a power of attorney acting on your behalf, powers of attorney do not have the power to change a beneficiary so you kind of set a rock rolling down the hill. And at a certain point you may be still alive and the situation or landscape may have shifted and the Rock’s going to keep rolling. There’s not really, to my knowledge, without a whole lot of legal work, a way to change that or challenge that. But the other thing I’ll say is how far back from the grave are you trying to reach? Sometimes I’ll challenge people like that. It’s like, “Well, I want this kid to have 17%. I want this kid to have 19%. I want this kid to get this one. If they go to school, they’re going to get this.”

Colin White:
And there’s this whole list it’s like, “Yeah, no. I’m not going to be your advisor adjudicating that mess. I am not going to sit in the room with those heirs and try to walk through this with them because man, you’re just going to have a whole bunch of people yelling. And I don’t, I don’t think it’s going to accomplish the goal that maybe you were hoping to set out to accomplish.” So there are limits and I don’t know where we draw the line differently, which is perfect. Because again, there’s different ways to do it. I imagine you hit a point as well where you’re saying maybe that is a bridge too far with regards to detailed planning.

Brent Vandermeer:
Oh, 100%. I mean, usually that comes around in trusts, if someone is setting up trust in their estate and then they’ve got the joy of setting all of these rules up guidelines. I’m with you on that one. I think he has to do the trust and make sure that your kids are protected because there can be very valid reasons for having a trust in place, whether a grown child has a disability or their minor kid still, or blended families, or just bad marriages that you suspect might end up going the wrong way. Just so many reasons why that might appropriate. But then a certain personality type, I’m sure you know it too, the very detailed oriented people who want everything, I’s dotted, T’s crossed. And that’s a commendable thing, but it’s that over control and over designation, the idea of keep it simple and give the powers of your trustee, because obviously if you’re going to set up a trust, you have to have a trustee, they should be able to override.

Brent Vandermeer:
Even just in my own situation, I have kids who are still at home. I have four young kids and that idea of, okay, here’s the general guidelines in my trust. 18 years old, they get X. 25, they get Y. 30, they get Zed, all the rest. But the trustee has power to override that because I trust my trustee that they’re buying a house or a Ferrari, they’ll decide between the two as to what’s a good purchase and maybe what isn’t a good purchase at the time. So don’t let, don’t you control from the grave. But again, this maybe blends in a discussion of, do you have such a person? But if you do have trusted people in your lives that can help you give them the power to make decisions and just let them run with it later on. Don’t over plan.

Colin White:
Yeah. But, Brent, I know your kids. They take the money and say they’re going to buy a house, they buy the house and as soon as the trustee walks out the door, they sell the house and buy the Ferrari. Your kids are that smart. They would figure that out here.

Brent Vandermeer:
They would. As an aside, you played poker with my kids once at my house. And you saw pretty darn good poker, especially the poker players. Even the 8 year old. I believe she took your money, Colin.

Colin White:
No. Again, that’s not how I remember it. It’s fascinating how you and I could be the same room and have two different memories of the same situation.

Brent Vandermeer:
Oh, we will leave that for our listeners to decide which way it went.

Colin White:
Who’s more believable. But listen, I will tell you that I’ve had this happen to me a number of times where I’ve had a client call up and say, “Hey, I need to come in and set up a trust for my grandkids.” Great. Let’s have a meeting. So they walk in and one of them walked in with their son. “I need to set up a trust for my grandkids.” I said, “Okay. What are you trying to accomplish?” “Well, I want to be able to give him money for this, this, this, this, and this.” And the son’s sitting there nodding up and down. And he seems to be perfectly legit too. And so I said to the client, I said, “Well, your son seems on the same page with all this. Why wouldn’t you just give the money to him and then let him disperse the money the way that you’re you’re describing” Because he seems to be a complete agreement with it.”

Brent Vandermeer:
Do you trust your son?

Colin White:
Yeah. I didn’t really come out and say it. I’m not-

Brent Vandermeer:
I thought you would. I thought you would. I would probably meander around and get there and you’d be like poke in the eye. Right?

Colin White:
Well, because she was saying I need to trust from my grandkids. Well what do you want it to accomplish? Because people don’t understand what that means. All right. So let’s just go through that for a second. If you’re going to set up a trust, it involves a legal document. It involves a trustee and a settler. It involves an annual tax return. It involves lots of expenses and maintaining over time. And the more complicated you make the trust and the longer it lasts, the more expenses that you incur. And again, the trust, whoever is the trustee is going to be restricted in what they could do, both on the restrictions you put on them, but there’s also laws about being a trustee that they’re going to have to satisfy depending on jurisdiction.

Colin White:
So it’s a bit of a thing. Now, if there’s something very specific you’re trying to set up to accomplish, maybe it’s worth it. But there has to be, in my opinion, a fairly strong motivation to do it. It used to be that there was a bigger tax reason for doing it because trusts used to get their own marginal tax rates and there was a big tax advantage to it. And that hasn’t been the case for a number of years now. So there’s not a lot, if any, tax advantages. In fact, some tax disadvantages.

Brent Vandermeer:
Disadvantages, yeah.

Colin White:
So that aspect doesn’t really make sense. But if you’re dealing with a disabled child who’s going to be disabled through their whole life or there’s minor children, there can be things like that. I don’t know where you draw the line, Brent, as far as when you think a trust makes sense and when you think it’s more trouble than it’s worth.

Brent Vandermeer:
Well, to me, I think you said it yourself earlier, just great. What’s the problem you’re trying to solve? And that’s, if you don’t have a problem you’re trying to solve, then you’re over engineering something. And people are very keen, I think it’s more awareness. Like people have just heard, “Oh, that’s a great idea. I should do that.” Or they come into what to them, and rightfully probably is, a lot of money then they just want to do right by it and do the right thing. And so they think, “Well, that makes sense. I should just do that. I need one of those.” And well, when you do that math that you were just talking about on how much money you’re putting in here, and do you realize it’s going to be, like to talk about those compliance costs you referred to, easily two to $5,000 a year in fees and to lawyers, accountants, advisors, all that stuff.

Brent Vandermeer:
Is that really like from a percentage of the assets that are going into it, that’s a pretty high management fee if you want to think of it in that way. And on top of what you’re going to pay, Hey, to actually have the money managed or in whichever way you do that. So yeah, what’s the problem you’re trying to solve? And is the solution really commensurate with that? I that what you want to do? And there’s other ways of doing it you may have not thought about. And like you said earlier, you’ll probably have some ideas within 20 seconds about what other options might there be to solve that. Not every nail needs a hammer guess is what we’re saying. If that’s the only thing you have in your toolbox, everything looks like a nail to get the story there.

Brent Vandermeer:
Yeah. So I would tend to avoid that. We really try to just do it where there is a need for it. In Ontario we call it the ODSP. The disability situation, you need a Henson trust to make sure that’s not going to negate the income that they’re getting. Or they can’t manage their money themselves for lots of different reasons, whether it’s addiction issues or just mental competence issues too, that you want to protect them. That’s a problem you’re trying to solve. You’re trying to protect them from decisions they might make that you know that they can’t make on their own. And like you said, the whole tax problems are not really solved anymore by that. Used to be as its own entity. And that’s what people have to realize. You said earlier, they’re creating an entity, like almost like another person. The trust becomes like a person that has its own tax bracket. And it used to have the graduated rates that we could take advantage of. But now it’s the highest marginal tax bracket.

Brent Vandermeer:
I’ve had some people sit in my office and say, “I’d like to set up a trust.” And I say, “Well, okay, what’s your tax bracket?” I know what it was, they did too. And I realized you’re going to double your taxation by doing that. You’re at a lower tax bracket so why again are we doing this? And yeah, those are all things to think about. What’s the outcome going to look like? And we’ve just had the experience of whether in our own lives or at seeing many, many lives of clients, we’ve lived through different options and different ideas and strategies and kind to get an idea of which ones work and which ones don’t work.

Colin White:
Yeah. The other thing that a trust can protect against is putting somebody in a bad situation. Like if you’ve got a couple of children that have issues, whether through their spouse or through addiction or through their own habits, and you say to an uncle, or you say to a cousin or somebody that’s close, “Hey, I want to leave this money trust for my kids. And then you get to decide when they get money.” You’re putting them in the position of being the bearer of bad news maybe, or being the disciplinarian or disappointing them. So again, you’re not necessarily doing that person any favors. But again, maybe you appoint a law firm, and you have a will document and then the law firm gets to be the bad guy. I would caution against putting somebody in the middle of something that could go sideways. Think all the way through, like at this point in time, it would be fine. Yeah, well think 10 years out, 20 years out. What’s this going to turn into?

Colin White:
Because again, if you’re trying to protect somebody against themself, or you’re trying to protect somebody against something, then that person may not agree. There’s the whole Britney Spears conservatorship thing. You had a certain point, but it’s going to get messy. Maybe it was done for good intentions at one point, but the person you put in charge is now in a lose lose situation because it’s going to be legally difficult. It’s going to be morally fraught. It’s going to be a lot of stress. So again, just because you have a goal or objective for somebody, doesn’t mean it’s going to be easy to execute over their lifetime. Be kind, don’t put somebody in a bad situation where they’re going to have to be the bad guy for an extended period of time and then people yelling at them and stuff.

Brent Vandermeer:
Well, this reminds me of one of the things that I’m passionate about moreso now, is I sort of approach the second half of my working career, or what I hope is the second half. I’ve done it for 20 years, maybe I got another 20. But this idea of talking about that successful transfer of money from one generation to the other. And I think we’ve talked about it a couple times here now, but the communication aspect is so important. And to me, I see a growing sort of distaste. And many clients who come see us and think I haven’t done a good job with this. I feel like my advisor, who’s not our two firms hasn’t really ever talked to me about how do I successfully transfer this money to my kids? And there’s so many issues at play here, whether someone’s older and dealing with grown kids or younger in my case, and maybe looking at like a younger professional, for example, who’s making a lot of money and has assets now and says, “How do I raise my kids well with that? But how do I pass on money eventually to those kids?”

Brent Vandermeer:
I was reading a Williams Group study of the day that said actually 70% of intergenerational wealth transfers end up in failure. And failure was being defined as the money was lost. And it’s the old adage, three generations and the money’s gone. It’s rags to riches to rags, or my Dutch background, it was clogs to clogs in three generations. But that’s so true. And I think people have that, a lot of clients, my clients have this inner sort of, “Ah, I want to try to address that.” And that’s something that I’ve been trying to help clients with a little more. And I think you’ve done this as well. And sometimes it works, sometimes it doesn’t. But the idea of having a family meeting of trying to build or create a space where they can have conversations with their kids. And for some, it’s a non-starter right away. They’re just not in a place to do that.

Brent Vandermeer:
But for those who are, I actually had a really great meeting the other day with middle aged clients who brought in their now grown child, but into the meetings with me. And having the idea that they wanted to teach them how they conducted meetings with a financial advisor. What kind of questions they asked and what kind of issues they were trying to solve. And what was really fun, a difference in philosophy between the mother and the father, the husband and wife. One was very big on social values and social investing, environmental ESG type things. They wanted her investments to align with that. And in this case, the husband was very big on, I don’t care what it is, just making me the most amount of money. And I’ve seen roles. It doesn’t matter what gender or whatever it is. There’s just different values. And I really loved how the mother, like the son actually asked the question, “Hey, you guys are asking very different questions of Brent. Why is that?”

Brent Vandermeer:
And the mother ended up saying, well, because her values, she wants those to be aligned with how she’s investing. And that’s very important to her. And she wants to make sure that what she’s doing with her money aligns that way. And all this conversation was about these clients are really trying to put the work in now to make sure that their family’s sense of mission or vision around their money is well communicated and well trained because this Williams Group study that I talked about actually, was it exactly pinpointed that the cases that were successful were all around were they able to communicate the family’s wealth and the family’s vision and mission of how we deal with money? How do we think about it? How did it get formed, first of all, and how does it get moved on down the generations?

Brent Vandermeer:
And that’s a challenging thing to do, it’s not for everyone. You can’t force this. Some people may want it and may never be able to do it because the family dynamic is just not at a place where it is possible. But where it is, that’s something for me, that’s becoming really very special because we can help find people’s purpose for their money and help kind of do good I think in a financial world that’s typically not very aligned or interested in finding those things to help clients with. So yeah, that’s been a fun area to work with with clients.

Colin White:
And listen, let me go on the record as wholeheartedly endorsing the family meeting when they can go well. Now, the percentage of times those are successful versus not, I just want to head off a few meetings that people drag me into. And there’d be meetings like, “Hey, my son’s going to come in and open up a tax free savings account, and we’re going to put some money in it. And I want you to teach him about savings.” I’m not [inaudible 00:16:09] free. I’m not Dr. Phil. This isn’t going to be a changing moment. If the kid walks in and has got no interest in saving money and like spending every cent as soon as they get it, 45 minutes with me, or three hours with me is not going to change their DNA. So don’t send somebody to me for me to fix them or teach them of the value of money, because although I have considerable powers, that’s beyond me.

Colin White:
The other meeting and the other intention that happens sometimes when I get into a family situation is I end up as judge, where one member of the family is trying to make a point to another member of the family, and expects that I’m going to agree with them and make a two to one, therefore we win. Again, not a good use of a meeting. And you’ll be amazed at how quickly I can duck that punch and not take anybody’s side and frustrate perhaps the purpose of getting us together. Because again, a good advisor, in my opinion, is going to be able to help you to do things better that you’re already inclined to do. We’re not going to be able to change your DNA and convince a 17 year old that saving for a car is not a good thing to do. They should be saving for the retirement.

Colin White:
Again, there’s going to be things that are just not likely to happen. So my suggestion is to moderate your expectations of dealing with an advisor. We’re not there to take sides per se. We’re not there to change somebody’s disposition towards savings. We’re there to try to help you effectively do what you’re already intending to do. And there, we can add a lot of value. And if those are your expectations, I think that you could learn lots. But again, expecting that I’m going to settle a feud that’s been going on for the last 15 years between two siblings. No. I’m not going to be able to fix that.

Brent Vandermeer:
Not the spot for us. Yes.

Colin White:
No. And I do keep a whistle in my desk that I use from time to time and I feel I need to call a truce or a halt.

Brent Vandermeer:
You got the referee jersey on.

Colin White:
Yeah, exactly.

Brent Vandermeer:
Technical foul.

Colin White:
Exactly. Yeah.

Brent Vandermeer:
So I should get that. What I do have is a crystal ball that I often pull out and say, “Oh, I’m sorry. Let me just consult my crystal ball a minute.” Sounds very, very similar.

Colin White:
My other question is, okay, so tell me exactly what day you’re going to die and I’ll do the math because this will be easy.

Brent Vandermeer:
Perfect. It’s just the numbers then, right?

Colin White:
Exactly.

Brent Vandermeer:
Yeah, you’re exactly right.

Colin White:
There’s lots of resources. And again, a good relationship with a good advisor, be it a lawyer, an accountant, or a financial advisor, should be able to point you in the directions of trying to have constructive conversations with your family, should guide you towards practical solutions that are as simple as possible for your situation, and be able to help you define sometimes. Because again, sometimes clients walk in the office and they don’t know. They’ve never actually had a conversation about these things. So we can sometimes ask the unasked question. And having clients go in and think about it for a year, come back the following year and say, “Remember last year when you said,” [inaudible 00:19:21] “Sounds like something I’d say, sure.” But anyway, they spent time thinking about it because it’s your wealth. It’s your family’s potential legacy. And it can matter. Spending some time on it, developing a family relationship where you can talk with some of these things. Yeah, it can be well worthwhile. Brent, any other, do you think would add to the conversation for our listeners?

Brent Vandermeer:
I think, well, maybe when you mentioned the word resources. I’ve been a fan of giving out a couple books. But there’s one, there’s a book called Willing Wisdom, a New York Times bestseller. And it’s just about setting up wills and why families don’t do it. And essentially the tagline that caught my eye was, seven questions successful families ask. And I thought, well, okay, so there’s a list of seven questions. Great, let’s knock them off. But there are a good starting point. And the key to me, a lot of this though, is to think through this, and maybe this is to lead people to think about this, what do you want to do with your money? You got to sit there and just start with that and think what’s going to happen. And for us, as we invest on the accumulation phase for people, the tagline we work with is to invest with purpose. So what is the purpose for your money is similar on the estate planning side.

Brent Vandermeer:
And if you have enough for yourself and you work with a good financial planner like Colin, who will help you identify how much is enough, and then you’ve got enough to ensure yourself too for the what ifs, things don’t work out as planned in the plan. And then now you’ve got enough for that, and you’re self-insured and you’ve got an excess, it’s, “Well, okay, what do you want to do with this now?” And maybe it’s not even your kids. Maybe there’s some fun discussions around charities and tax preferred donation of an appreciated stock. Or even things like that are really good discussions to have. But you really need to know what do you want to do with your money and how much do you need.

Brent Vandermeer:
And as you sort of answer those questions, you could proceed to sort of these next level topics. And I know you do this and I do too, it’s all part of the process, that you then, when you’re done, in a six or seven or eight step process, you start over again and revisit. But the key would be to start early, I think, to communicate well about it with your family members and loved ones and really get a clear sense of what you would like to have happen.

Colin White:
Well, raise good kids so you start with that. So raise good kids that are rational people that you can deal with later in life. It’s funny you bring up the books like that, Brent. As soon as I hear the seven key questions, again, it’s very remarkable. It’s very consumable to the extent that it gauges people and gets them to think at least about those seven things. I bristle at it because it’s like, what if there’s eight questions here? What if there’s only three that matter? Because it’s such a fluid thing and it’s such a living beast. And to your point, this isn’t something you do and forget. This is something you do at a point in time, and then you pick it up later and say, “Okay, at this point in time, it doesn’t make sense. As my kids get older, as I change my priorities, as the health of my family changes, one of my kids gets married, there’s grandkids.”

Colin White:
It’s a living thing. It’s never going to be done. It’s something that you should pick up from time to time, examine, make a plan, then put it away. And call it done for a while and then pull it back out when something changes or when a set amount of time is gone by because there can be changes legislatively and tax wise that can cause changes to be needed as well.

Brent Vandermeer:
There 100% will be. We know there’ll be change. And the key is to have open ended questions and to revisit frequently, and I think to work with someone like yourself or myself that helps you understand the things that you don’t know. To get out of your own head and realize these are topics that I can’t be an expert on. Your clients are probably, they’re very busy and they need to have a trusted person that can help them see things that they can’t see. And that’s a privilege for us to be able to sit in that chair and to try to help people with those topics.

Colin White:
In fact, I’d even go so far, Bent, as to say if you’re retaining an advisor or working with an advisor and they do not ask you a question that makes you think, or they do not ask you a question that you don’t know the answer to, then you’re not dealing with the right advisor.

Brent Vandermeer:
That’s a great point.

Colin White:
Our job is to try to make you think about things. The worst thing in the world I can do is when the client comes in and says, “I want to set up a trust for my grandkid,” if I grab a boilerplate trust agreement then I put it in front of them and say, “Okay, what’s the proper spelling of the kid’s name?” If I’m that advisor, I’m not helping. I’m not doing my job. I need to challenge what you think you want do just to be sure that it’s really what’s in your best interest. And I’ll tell you right up front it’s way easier to give people what they want. I don’t know.

Colin White:
Go back to the marijuana stocks, Brent, I don’t know if you remember those days. Marijuana’s going to be legal. Hey, I could have sold a whole bunch of marijuana investments, but I didn’t because I didn’t think it was in people’s best interests. So again, sometimes we don’t do what our clients ask us to do because it’s not actually lining up with what they really need. And so you should look for an advisor who is going to challenge you a little bit, at least make you think. And if you’re not getting it, keep looking. There’s one out there who will,

Brent Vandermeer:
I could not agree more. There’s two different schools that thought of those types of advisors. One is the product seller who just wants to give you the product, whatever it is. And that’s how they make their money. Or be the boldest to say, I guess a weaker minded person who doesn’t have the conviction or experience to challenge you back. And that’s really what you want. I could think about how I was raised. My father and my mother would ask me sometimes very challenging questions and they wouldn’t say always, “No, you can’t do that,” unless it was going to be really detrimental to me. But it was these guided questions of, “Tell me why you want to do that.” And oftentimes they’d say, “Okay, you’re a smart kid. You go ahead and make that choice. You do what you think is best.”

Brent Vandermeer:
There was no judgment to it. I’d go away realizing, “Oh, now I have ownership of this decision.” They didn’t just tell me. And nine times out of 10, I realized, “Oh, I can’t do that.” And I kind of think of it like that a little bit too, but you have to be strong. You have to have an advisor who really has an opinion on something and actually has the courage and the confidence and authority to question what you’re thinking of doing. And I know you definitely have that call.

Colin White:
Okay. I’m not sure if you’re taking a jab at me there or not, but I’ll take it as a compliment.

Brent Vandermeer:
I would never.

Colin White:
I would quote Richard Taylor, one of the, he won a Nobel prize in behavioral finance. He was on a podcast one time and he made the comment that, “It’s way more profitable to take advantage of people’s weaknesses than try to fix them.” And there’s a lot of truth in that. And greed makes the world around. So just be careful. The world’s not necessarily lined up in your corner. So again, that’s why we’re here. But Brent, we’ve been at this for a bit. Is there anything you feel that we’ve missed up to this point of our conversation?

Brent Vandermeer:
No, I think that’s a good a place to leave it. I don’t think people are still listening to us now after we’re an hour in it. So if we’ve lost you, send an email, get in touch. But no, it’s a great conversation, one that’s not had often enough, I think. And yeah, I think that idea of you said earlier, find someone you can trust, find someone that you can communicate well with, and those are the two good places to start.

Colin White:
Well, Brent, thanks so much for taking this time here on Barenaked Money. And we’re going to listen carefully to the feedback we get. And if the audience likes you, maybe we’ll bring you back.

Brent Vandermeer:
Maybe they will, maybe they won’t. It was an honor to be here, Colin. Thanks for having me on.

Colin White:
All right. And we’ll talk to everybody soon.

Announcer:
This information has been prepared by White [inaudible 00:27:33] wealth planners, who is a portfolio manager for IA Private Wealth. Opinions expressed in this podcast are those of the portfolio manager only, and do not necessarily reflect those of IA Private wealth, Inc. IA Private Wealth Inc is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. IA Private Wealth is a trademark and business name under which IA Private Wealth Inc operates.

Colin White:
We’ve noticed something. It seems there are a lot of people who would rather try to figure out their lives with an online calculator than airing their finances to a human. Stop doing that. You need to talk to someone who can help direct you, tell you where to start with what you’ve got to make the biggest impact on your future. You can’t figure that out at doIhaveenoughcash.com, but you can figure it out by chatting with us. Call us. It’ll be okay, you’ll see.

Speaker 4:
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Speaker 4:
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