Next generation stands to inherit $1 trillion – but parents have a problem

Craig’s Investment Partners’ Paul Burns.

That’s where some of the many challenges apply. While it’s about money and property on the face of it, inheritance is also about values and expectations.

But values change over time; for example, Burns says many older Kiwis, particularly Baby Boomers, have an unrelenting focus on hard work, discipline, and if not parsimony then modest spending. “We have clients who keep building their assets, never enjoying what they build. That’s changing to an extent, where the next generation wants to enjoy certain lifestyle assets.”

Another potential difficulty comes with the wealthy Kiwi who flies under the radar, driving an old ute, maintaining a low profile and low-key lifestyle while quietly sitting on millions. “We’re a lot less like some other countries,” says Burns. “Flash is vulgar for many older people.”

Such challenges can contribute to the sensitivity of discussions around wealth and succession. However, such discussions – which go beyond numbers, economics, and the mechanisms of value creation – should start as early as possible.

“The next generation should understand what their inheritance means and what it does not; real care must be taken, as you don’t want to create any expectation that there’s no need to follow a career and stand on your own two feet financially,” says Burns. “Encourage financial independence, while sharing how money is managed, growing an understanding of finance and things like the power of compounding – but appreciate there is a lot to understand and learn, so it takes time.”

Family gatherings around the holidays are a good opportunity for such discussions, he says, and the lines of communication should always be open and ongoing. “And thorough. We’ve seen cases where some siblings actively engage with parents on finances, while others don’t. This results in uneven expectations and potential problems down the line.”

On that note, he says the presence of wealth and an inheritance comes with an equal presence of expectation, emotion, and conflict. Careful and thorough management is necessary, and clarity is the responsibility of the parents. 

“Avoid the carrot and stick approach, where wealth is used either as an incentive to encourage desired behaviours or goals, or as a threat discouraging certain courses of action,” Burns adds, pointing out that benefits are typically short-lived, while resentment is often permanent.

He also advises bringing children into discussions with wealth and investment advisers: “We get to know clients and build trusted relationships. While it does depend on the stage of life a client is at, we like to work with the children, so they too know what we do, how we do it, and the value we create by looking out for the best interests of the family and its heirs.”

Things can go awry when a sudden illness or other catastrophe accelerates the necessity for succession. This, Burns stresses, underlines the importance of planning early and thoroughly, while staying on top of the documentation such as wills and trusts. 

“Friction is created when it’s unplanned and unexpected, with no groundwork. Where there’s uncertainty, problems are likely. Good planning means keeping everyone on the same page, knowing the shared goals and values, and facilitating a smooth transfer.”

He takes satisfaction in seeing wealth retained in families who’ve contributed significantly to New Zealand through their efforts, often passing on the work ethic along with property and possessions. “Knowing their wishes live on, knowing that they are looking after their children even after they’re gone, saying ‘Your Dad would be proud’ – that’s precious.”