There is an enormous amount of wealth that will be passed down to the next generations over the coming two decades. Current estimates put it over a trillion dollars! This massive amount of wealth brings with it complex issues which weren’t often considered by previous generations. Much of this wealth was accumulated by today’s seniors, and will be passed down to their baby boomer kids, who are soon heading into retirement, or are already there.

In fact, according to a survey done by Investors Group, over half of Canadians are “expecting” an inheritance. This may be a little optimistic, considering that almost half of people surveyed who are over 60, are expecting to need their savings to fund their own retirement. With the landscape of retirement changing – people living longer, fewer pension plans to fund retirement, etc., younger generations may have to adjust their expectations of what they will inherit.

In the past, “estate planning” basically meant having a will. Today, it means so much more. A new term to describe it has become popular over the years – Intergenerational Transfer of Wealth. Basically, it’s a fancy way of saying passing money from one generation to the next. The fancier term actually fits with the more in-depth planning that has become necessary for many families – and I’m not only talking about the “wealthy” ones.

Planning how to transfer money to your beneficiaries (often your kids), has become complex. Legal issues, blended families, taxes, fairness protocol, psychological issues, etc., all play into the planning process. According to the survey done by Investors Group, most families are not taking the time to discuss or deal with inheritance issues. But interestingly, those who have had “the talk” say it was not a difficult topic to discuss. Having a family discussion about it can put everyone’s mind at ease, and can also open more doors to planning opportunities. In my practice, I often have family meetings involving parents and children (sometimes by conference call), to work out specific details of the planning process.

In some cases, parents (or people leaving money) don’t want the beneficiaries to have details about what is being left to them. The beneficiaries may or may not even be related or could be a charity. Not all cases require communication between the parties involved, but still need to be planned properly with the right professionals.

The reason I say inheritance can be a “double edged sword”, is because I’ve seen the disturbing side of wealth transfer as well as the positive side. I’ve seen irreparable damage done to relationships, especially (but not exclusively) between siblings and/or parents. Resentment can be a burden that lives on long after death.

I’ve also seen adult children neglecting to save and plan for their own future, because they assume their inheritance will be enough. This is almost, but not quite as bad, as those who have told me (in all seriousness) that they’re planning to win the loto, before they retire. “Okay, I guess technically that could be considered a plan, but may I suggest you have a Plan B…. just in case you don’t win the loto.”

Expecting an inheritance is great, and can have a huge, positive impact on one’s future. But planning and depending on it can be detrimental if it falls through. So many things can change the anticipated outcome, and if there’s no Plan B, nothing to fall back on, there’s going to be a problem! Not to mention, that it’s important psychologically for people to take responsibility for their own future.

The topic of Intergeneration Wealth Transfer is huge, and my intention here is simply to touch on a few of the issues involved. Whether you’re the next generation to leave an inheritance, or the next generation to receive an inheritance, you should be considering the issues at hand. Even though in Canada we don’t pay inheritance tax as in the US, the tax owing on an estate can be enormous – in some cases, up to 50% of the estate! Obviously tax is a BIG issue when it comes to the intergenerational transfer of wealth.

Other biggies are relationship issues (as I mentioned above), and legal issues. All of these issues can be dealt with to some extent using proper planning. There are insurance related options that can significantly reduce the tax bite, equalize, and preserve wealth; different types of trusts can protect, provide, and manage assets for loved ones; estate freezes can potentially freeze the current tax liability; and then there are gifting and other planning tools available as well.

A comprehensive Intergenerational Transfer of Wealth plan will rarely be done by only one professional. A good starting point is with your Financial Planner who can quarterback the team required to put everything in place. Involving a professional advisor can facilitate the conversation, and point you in the right direction. As with so many other things in life, having a plan reduces uncertainty and gives you peace of mind….something we can all appreciate.

Lynn MacNeil, F.PL. is a licensed Financial Planner with Investors Group Financial Services Inc. in Montreal, with 20 years experience working with retirees & pre-retirees. This column is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide legal advice. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at (514) 693-3384 or lynn.macneil@investorsgroup.com

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