How To Plan For Estate Wealth Inheritance

Inheritance could hit $1 trillion in next decade.

It is projected that over the next 20 years, Canada will see the biggest transfer of personal wealth between generations. Estimates of Canadian inheritance of up to 1 trillion dollars! That is a huge number.

Why is the number so high?

This will be the biggest intergenerational transfer in history.  Real estate prices are up dramatically.  The stock market is up dramatically. Plus, the generation who grew up in the Great Depression and saved milk bags and string, kept their frugal ways for a lifetime and they have money to pass onto the next generation.

What needs to happen for people to be ready for this? 

There has to be a will. That just has to happen. If you’re an adult, you need a will. Even if you don’t have kids. Then, there needs to be a conversation about what’s in the will so the next generation knows what to expect, and what not to expect. There are also things you should talk about that aren’t in the will, like who gets the family heirlooms and what are we going to do with Mom’s Facebook account.

What is your opinion on the obligation? Should parents be leaving something for kids to inherit?

The answer differs for every family. Some parents feel it is their obligation to leave an estate. Some kids feel like it is the parent’s obligation. First, it’s about values. Second, it’s about circumstances. If the parents have a large estate and the kids could benefit from that estate, that’s different than if the parents don’t have an estate and feel like they have to scrimp in their retirement in order to leave something for the kids.

What about parents who are gifting early, like a house down payment?

We know that part of the reason house prices have been on such a tear is that parents are forking over the down payment. If you have the money, why wait to give it to your kids? There’s an expression: “It is better to give with a warm hand than a cold one”. So, you get to see the benefit of the gift in your life time.

One challenge is that if the gift is spent on the matrimonial home, it, becomes a part of the family’s assets, so they will lose half of it if they get a divorce. But an inheritance can be kept separate. Another challenge is knowing how much money are you going to need in your lifetime. You don’t want to give it all away in advance.

Does the inheritance have to be “fair”?

“Fair” is an interesting word, because it is subjective. Is it “fair” that the millionaire sibling gets the same amount of money as the social worker? I don’t know. But if you’re the parents of a number of kids, you can think about fair or you can think about “equal”. That is a simpler way to do it.

The other dynamic that can be really hard is dealing with family property. Like a cottage or cabin, or the family farm. These are things you want to talk about early, because if you don’t, they could break the family apart after you’re gone.

How do the kids prepare for an inheritance?

It depends on what the amount is. You don’t want to be so prepared that you’re waiting for your parent to die. You also don’t want it to suck the ambition from your veins, and have you spend outside your means. (“I don’t need to save for retirement. I’m getting a $1million).

Don’t do anything right away. There is no need to. You’ll be processing the grief of losing the people who is passing on the money to you. And you’ll want to be really thoughtful about what you do with the money. What’s the purpose of it? How do you honour their memory with it?

Bottom line: Have an estate plan. And talk about your estate plan.

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