When should you start sharing your wealth? While many people decide to leave their assets behind in a will or trust, others prefer to experience the joy it brings during their lifetime. In recent years it has become increasingly popular for people to use a combination of lifetime gifting and estate planning to take advantage of the benefits both approaches offer while protecting their own financial stability.

Transitioning from the mindset of a lifelong saver to someone who is intentionally distributing wealth is not easy. Habits, lifestyles, and routines that have been adopted and reinforced over decades cannot be changed with the flip of a switch.

There is a phenomenon in behavioural finance called an endowment effect, which leads people to place more value on, or have a stronger emotional attachment to, things because they own them. Although this bias is typically discussed in a different context, it can become apparent during the estate planning process when people are reluctant to part with their assets even when there is a valid rationale for doing so. The Center for Retirement Research at Boston College reported that half of all retirees are afraid to spend or draw down from their savings.¹ It can feel completely unnatural, even if you are convinced it is the right thing to do. But there are steps you can take to manage the emotional aspects of this new stage of life.

Consider the Rewards

One of the strongest hurdles for many long-term savers is the rush of excitement that accompanies large purchases. However, this natural tendency to pursue things that make us feel good can actually work in your favour if you take some time to imagine how your potential beneficiaries might use your gifts of property, securities, or cash. Tune into conversations about their careers and life aspirations to understand how your gift might help them achieve those goals. You can also take a more direct approach if your relationships make it appropriate. Ask questions like, “What would you do if you won the lottery?” or “What are your financial goals?” You might be surprised to learn that someone has always dreamed of renovating a historic home, attending culinary school in France, starting a business, or volunteering overseas.

Now imagine how rewarding it would be to tell the people you love that you can help make their dreams come true.

On the opposite end of the spectrum, you might be surprised to learn that person has accumulated a large amount of debt for some reason beyond their control, such as medical expenses. Think about erasing those bills, possibly paying their medical providers directly. How would it feel to know you provided the financial spark that brightens their future?

In many cases, simply imagining the joy your gifts will bring is enough to start breaking down emotional barriers that have been built and reinforced during a lifetime of accumulating wealth. Resistance and uneasiness gradually give way to a new sense of purpose in life.

Test the Waters

The journey of a thousand miles begins with one step, as the saying goes. If you have not done so already, consider treating yourself to something you would not normally splurge on, whether that is a tangible object or an experience. It does not have to be extravagant, just something that breaks the ice and starts chipping away at the saver mindset.

The same approach can also inform your decisions about your estate plan and in particular how you would like to draft your will and trusts. You could consider making some modest gifts to see how your beneficiaries use them. For example, if you are not sure about whether a family member would prudently use her inheritance to support herself or recklessly spend it all at once, you might gift her a test amount to see how she reacts. The actions of a beneficiary will provide clear insights into the conditions, if any, you might want to include in your will and trusts.

What Is Fair?

People are usually more motivated to put together a decumulation plan when it is customized to align with their personal values. What is your definition of fairness and equality? Should you give more to someone with fewer resources and a greater need than others? The traditional approach has been to treat children and grandchildren equally, both in lifetime gifting and in estate planning, regardless of their unique financial situations. The rationale for this approach is that financial situations change (for better or worse) along with careers, health, marital status, and major life events.

Increasingly, however, people are defining fairness and equality based on what those terms mean to them personally, within the context of their own unique situations. As a result, it is becoming more common for family members to receive different amounts. What about extra support for a loved one who has a form of disability? Would you view the situation differently if one child had very modest means while another was living a fairly luxurious lifestyle? Is it more equitable to provide extra support to the child who has significantly fewer financial resources or a more challenging family situation? Should a family member who frequently shuttles you around to the grocery store and assists with doctor’s appointments receive something extra? Every person’s situation is different. As people lean into the estate planning process, they often become more comfortable with their own interpretation of fairness and equality.

Rely on Professionals

Sharing your wealth should not be a monumental or burdensome task, and drawing down on your savings should not be “almost physically painful,” as it is for some retirees, according to David John, a senior strategic policy advisor at the AARP Public Policy Institute.²

The Ontario Securities Commission offers several suggestions for retirement planning that are just as applicable to decumulation.³ The first is what the commission calls the “head start effect.” When a task is started and progress is made, people feel like they are moving closer to their goal, which encourages them to continue and exert even more effort. Second, it suggests taking a series of small steps, which it calls “chunking,” to make the process more manageable. In other words, test the waters before diving in.

As you begin this transition, be sure to lean heavily on the guidance and resources of experienced financial professionals. Individuals who struggle to change the approaches and mindsets that have helped them successfully accumulate wealth over the years, often find it helpful to reframe the term “decumulation.” Instead of viewing this phase of life as simply a time to distribute wealth, it can be seen as an exciting new chapter in your life—full of opportunities for growth, fulfilment, and self-renewal.

When the time is right, invite your beneficiaries to join you in a meeting with financial advisors who have a clear understanding of your complete financial picture. An impartial, professional intermediary can guide the conversation, answer questions, and help everyone feel more at ease.

 

Source: AARP, 6 Telltale Signs You’re Being Too Cheap in Retirement, April 24, 2023.

 

 

 

1. Half of Retirees Afraid to Use Savings – Center for Retirement Research (bc.edu)

2. A surprisingly hard part of retirement: Spending what you worked so hard to save | CNN Business

3. inv_research_20180727_encouraging-retirement-planning.pdf (osc.ca