Even wealthy people worry about their financial future | Job Binary


Ted Rechtshaffen: There’s a list of things that can only be done with more money

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They say the best time to plan for the future is when things are going well.

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Of course, in a perfect world. In today’s world, people are nervous and worried about their finances, so we are seeing an increase in demand for financial planning. In some ways, this makes perfect sense. If someone’s financial future looks good when things are bad, they can be confident that they will be fine in most situations.

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At our firm, the growing demand is mostly from wealthy Canadians, typically those with a net worth of $3 million to $30 million. Now I can see that he is crying and crying. “What are these rich people worried about?” There’s an old saying (and a new song): Mo’ Money, Mo’ Problems.

Some issues and concerns are common across the wealth spectrum, while others are unique to people with a lot of money. Consider one area that affects the wealthy differently, but may be of particular concern these days: gift giving to children or grandchildren.

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Giving gifts to family is not on the agenda for many Canadians. Just like the instructions on an airplane tell you to put on safety gear before you help a child, your financial plan needs to focus on yourself first before you know you can help others. But if you can easily help others, that’s worth considering, especially when it comes to real estate.

Giving gifts to children or grandchildren is a particular concern for the wealthy these days.
Giving gifts to children or grandchildren is a particular concern for the wealthy these days. Photo by Chloe Cushman/National Post files

To consider a fictional example, if you have three middle-aged children between the ages of five and 25 and nine grandchildren, you may be concerned if gift-giving is part of your plan.

Sometimes the oldest child wants to buy a house, and the parents may decide to put up $200,000 for a down payment. However, the question is not how much they can contribute to the oldest child; this is their opportunity to contribute equally to all three children.

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If they cannot afford to donate $600,000 ($200,000 per child), they cannot donate $200,000 to the first child. Not all parents contribute equally to their children, but most do.

Often, a gift to an older child occurs several years before a gift to the youngest child. What happens if inflation is high during this time? Given that $200,000 is a lot cheaper now than it was eight years ago, would you give your youngest more than $200,000? What if you can’t afford to give that much money to your little one today? Is there a way to give less?

It can be even more difficult when it comes to grandchildren. In our example, there are nine of them, and a gift of $50,000 can easily be treated as a liability of $450,000. Given the 20-year age gap, how do you manage it effectively? What if the first four grandchildren receive this gift and the last five do not?

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Yes, these are first-world problems of the rich, but they are real problems. Families can split up over parental preferences, and sometimes these types of gift-giving issues can be the cause.

To help navigate this process, we encourage families to develop a financial plan each year that gives them a better understanding of their financial future. With this information, they can better plan potential gifts and see what they can or cannot afford. They can also determine what types of accounts or holdings are best used to fund these gifts.

Perhaps the result of this planning is to be a little careful in the beginning to help ensure that you can fund gifts in good times and bad. Like we said, you can always choose to give more in the future, but if you give too much, it’s hard to take it back.

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My firm has provided a free report on the top 10 financial planning questions high-income Canadians ask and ideas on how to best answer those questions. Some people will look at these questions and relate directly to them. Others will be somewhere else and say they wish they had the same problems.

But regardless of wealth, there are some universal concerns. It’s about making sure you and your partner get along, trying to make the most of what you have, and how best to help your extended family.

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It’s essentially the same, but the list of problems that can only be made with more money is inevitable, and it takes good planning to deal with them, especially in this environment.

Ted Rechtshaffen, MBA, CFP, CIM, is president and wealth advisor at TriDelta Financial, a boutique wealth management firm focused on investment advice and high net worth financial planning. You can contact Ted directly tedr@tridelta.ca.

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