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By: Joe Hornyak
October 2008

“… a very rich person should leave his kids enough to do anything, but not enough to do nothing” – Warren Buffet

Executive CompensationOne of the challenges in estate planning is deciding whether to limit what you pass on to your heirs so that you don’t spoil them. Most of us became wealthy through hard work, commitment, and our own ambition. We hope our children end up sharing these values and following in our footsteps.


The reality is, however, that despite our best efforts as parents, there are no guarantees when it comes to raising children. Indeed, hardly a week goes by without a headline about some son or daughter of a wealthy family being sent to a rehab centre or in trouble for one reason or another.

Answers to the debate on how much to leave your children range from providing them with a good education so they can stand on their own two feet to everything. In fact, most wealthy people do end up leaving their entire estates to their heirs. After all, the reason they worked so hard and were so dedicated to building their fortunes was to provide a better life for their children. They certainly don’t want to take that away on their passing.

And, the decision is easy if your children share your motivation, your values. They will, in fact, build up your fortune for their children and their children’s children.

Where real problems arise is when the parents are concerned about the ability of a child or children to manage their lives, much less manage a fortune. There are solutions.


Those that practice tough love let the kids know that just as mom and dad made their own way in the world, they will have to do the same. There will be no estate windfall, it’s all going to charity.

Another approach is to help prepare your children for the responsibility of inheriting a substantial estate. As Private Wealth Canada’s staff writer George Di Falco reports in his article on page 27 of this issue, ‘Banks Stepping Up Services For The Affluent Market,’ a number of Canadian banks are offering financial fluency programs and education programs for the children of wealthy families. These banks believe that extending proper financial education to all members of the family ensures that everyone is on the same page when it comes to wealth management, financial planning, and banking.

In some cases, however, this isn’t enough. No amount of education can overcome the problems of kids with destructive behaviour or attitudinal problems. In these cases, the solution might be a testamentary incentive trust. This is a trust that is created by your will at the time of your death. It is designed to encourage certain behaviour by your beneficiaries, and to perhaps discourage other negative behaviour, by attaching strings to the distributions from the trust.

The conditions under which portions of your estate are paid out from these trusts are limited only by your imagination. Trusts can be arranged that reward the benefi ciary for earning a degree, which match what they earn in a year, or reward getting treatment for drug addictions.


However, incentive trusts should only be used to reinforce values that you have tried to instill in your heirs, not to punish them for behaviours you find unacceptable. (Editor’s Note: See the September 2007 issue of Private Wealth Canada for an article on testamentary trusts. And to request a copy of the issue, eMail the editor at

In most cases, they are a short-term solution. Th ey are most effective when heirs are between the ages of 20 and 40. At 40, they are as mature as they are ever going to be and you should have a pretty clear idea about what they are going to do with your estate, and can change your will accordingly.

And the financial education element should be provided regardless of how you plan to dispose of your estate. Everyone can benefit from understanding how their finances work.

Joe Hornyak, Executive Editor
Toronto, ON


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