Millennials and Gen X are poised to inherit hundreds of billions of dollars from their elder loved ones over the next couple of decades, making this the largest wealth transfer in Canadian history. But many are unprepared for what’s coming their way – and what they’re expected to do with it.
A 2023 Ipsos survey of 750 Canadian Boomers (aged 58-77) and 750 Canadian Millennials (aged 27-42) about inheritances, estate planning, and how much money the former will be giving to the latter, revealed a surprising disparity: Boomers intend to leave their children an average of $960,000, while Millennials only expect to receive $309,000. Before the Great Wealth Transfer kicks into high gear, it’s important for families to get on the same page about their estate plans and wishes.
Genus Portfolio Manager and Partner Grant Conroy says that clear communication is the most critical component of setting up inheritors for success. “It’s not so much about the number of zeroes; I think it’s about dreams and intentions,” he says.
The dollar value is what it is, but the intentions for that money is where things can get murky. But, as a potential inheritor, you can do something about this – while there’s still time.
Encourage your family to talk about estate planning
Finances can be an uncomfortable topic to broach, and may be taboo in some families. Throw death into the conversation and it becomes even trickier to bring up. However, it’s critical for you to know if your family has a last will and testament – the cornerstone of an estate plan. Thorough estate planning is the first step to setting up inheritors for success.
You can encourage your family to establish an estate plan and instructions without inquiring about their specific plans or financials quite yet. But it’s important to stress that competent and holistic estate planning is beneficial to everyone involved, and will reduce confusion or family disputes down the road.
“Most parents want their kids to get along when they’re gone,” says Conroy. “So why would you not have this conversation? The importance is keeping family harmony.” It’s also much easier to have these conversations on your own terms, in a relaxed environment rather than waiting until they’re forced upon you by a death in the family.
Gather the information you need about your inheritance
There’s no set checklist or template to follow when gathering information about a potential inheritance, and details will be specific to each family and its dynamic. Your loved ones may inform you about the executor for their will (or may ask you to do this job!), the financial planners they’ve been working with and how they intend to split their assets. Beyond this, it’s the intangible information you’ll want to discuss. Assets and dollar values can easily change with illnesses and longer life expectancies, but getting a clear picture of your family’s wishes for after they’ve passed on is priceless.
Parents and loved ones can spend a lot of time and money on estate planning, but if they haven’t communicated openly with their heirs, things can go awry. “A gift isn’t really a gift if it’s just given. It needs to be received as well,” says Conroy. This is especially true with assets such as vacation homes, properties and businesses. Do they want their heirs to sell the family home and use the money for annual vacations? Do they envision their children coming together for holidays at the family vacation property? Are certain heirlooms meant to stay within the family?
Conroy adds that there can also be guilt involved with receiving an inheritance when it’s not clear if there are intended purposes attached to it. This “what do I do now?” feeling can be mitigated by having conversations around intent, family legacies and parents’ wishes.
Tips for talking to family about your inheritance
When approaching the topic of inheritance with family, it’s best to focus on the legacy and the parents’ wishes. Start a dialogue around how they would like to be remembered and what they envision after they pass.
“With anything that we don’t like to talk about, there’s a lot of assumptions,” says Conroy. “Have you ever spoken to your parents about what they think is going to happen?” Entering into these conversations from a place of genuine interest and curiosity can spark a meaningful discussion that has lasting impact after their passing.
“Why did you work so hard? Why did you steward the wealth and not spend it? What do you want to see happen with it? Because everyone has a dream,” says Conroy. “The conversation doesn’t have to be binding. No one’s signing a contract.”
Families can come up with ideas together on how to honour family members once they have passed: Christmas cheques from Grandpa that continue for the grandkids after his death; annual ski trips with the money from the cabin’s sale; creating a cookbook with all of your mother’s favourite recipes; a donation to the shelter where dad volunteered. You might be surprised at what comes out of these talks and how they can shape the way you see an inheritance and think about your family’s legacy and values.
Plan your future with your inheritance in mind
Inheriting large sums of money or assets can affect myriad factors from your RRSP plan to your future tax bracket. It may also influence big purchases you may have otherwise held off on, especially if you know you’ll be coming into significant wealth down the road.
When receiving an inheritance, Conroy says paying off debt and mortgages is generally the first goal. From there, opportunities abound from philanthropy and investing to purchasing properties or taking that big vacation your family member wanted you to experience.
Some families may even begin transferring wealth to the next generation prior to a death in the family, or they may be explicit about how much they will be passing down. “It’s not good to bank on it [before you get it], but it’s good to be aware of it,” says Conroy.
The bottom line is that with clear communication, you increase the probability of a smooth transfer of wealth and are more likely to have confidence when making financial decisions that align with your family’s vision and values.
Looking for guidance with your estate planning and wealth management? Contact a Genus advisor today.
References:
- Great wealth transfer: How boomers are passing on fortunes to their heirs (no date) Yahoo! Available at: https://ca.style.yahoo.com/finance/news/great-wealth-transfer-baby-boomers-110047810.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAHvpvWH3pEeWlbwBXGnX5iovgOGQ-80GCdRJCQ7G45_2psVZU–TEXImOZi4Rn7MIxtXHGRfsvznWg_ekPBpIMi73DABROZUyQCeMvp8x8u_WxpScXuhuS3eeElxFo14wY7FjHkrCqe8pmB-wEHGIO-rbKi24z1xnKGIfViuBAJ2 (Accessed: 21 June 2024).
- Boomers’ inheritance plans up in the ‘heir’. Available at: https://www.ipsos.com/en-ca/boomers-inheritance-plans-heir (Accessed: 22 June 2024).
