The Great Wealth Transfer: Shaping the Future for Millennials and Gen Z – For Better Or Worse
Boomer giving money to young people

The “great wealth transfer” refers to the WHOPPING trillion-dollar fortune shifting from Baby Boomers to Millennials and Gen Z. This massive economic shift is poised to bring relief to cash-strapped younger generations. This may impact Canadians and Americans differently, and we’ll delve into how. Let’s take a look as to how this unprecented wealth transfer may impact younger generations:

Understanding the Wealth Transfer Landscape:

What Is the Great Wealth Transfer?

The Baby Boomer generation (born between 1946 to 1964) holds the lion’s share of wealth in North America. While the Boomers enjoyed an unprecentated time of economic prosperity, their children (Millennials and Gen Z) aren’t so lucky; many are struggling to reach the same milestones they did. It’s not simply a matter of reaching the same milestones in life as their parents did at the same age (e.g. buying a home, marriage, children, etc), but a question of even if the younger generation can reach the same goals their parents. The Millennials (born 1981-1996) and Gen Z (born 1997-2013) – are grapping to hold onto any financial success in their adult years.

For the younger generations, their economic success has been choppy – as it’s been one economic calamity after another. Many are relying on assistance from their parents, and as the Baby Boomers age, their accumulated assets — including real estate, investments, and savings—will (hopefully) pass on to the younger generations.

Several important aspects about this transfer include the following:

a picture of a group of seniors
Baby Boomers have the most wealth – how much will go to their children?
  • In Canada, a $1 trillion wealth transfer is underway, according to data from The CPA.

It’s no secret that the younger generations, many of whom who are part of the imploding middle class, are dealing with several financial hurdles – the great wealth transfer may be the financial boone to fix all of that.

Let’s go over the difficulties Millennials and Gen Z are facing:

The Canadian Perspective:

Rising Costs and Limited Opportunities:

Millennials and Gen Z are grappling with soaring housing costs, an astronomically high rental market, a labour market saturated with ghost jobs, and stagnant wage growth. According to The Globe and Mail, the national average home price in Canada has risen to over $730,000. This makes homeownership increasingly untenable for the younger generations. Since most job oportunities are in major urban hubs, like Toronto, Vancouver and Quebec, it doesn’t make sense to simply pack up and “move to somewhere cheaper” – as younger people are often told to do. There’s a tradeoff: moving from an expensive place (Toronto) to a cheaper place (Sault Ste., Ontario) can mean a move away from their families, friends, major entertainment hotspots, and contribute to the loss of job opportunities. People go where jobs go, and unless the job is remote, the same rings true for younger generations: packing up and moving to a cheaper place may not be so cheap. Many of the jobs (and housing) will often stay in cities, which tends to make living quite expensive.

Both Canadian and U.S. flag
Canadian and U.S. Millennials/Gen Z are struggling with the cost of living – in different ways

Generational Inequity in Public Policy:

While Canada boasts universal healthcare and has supposed, strong, social safety nets, these systems are straining under an aging population. This is a global problem: younger generations, under the strain of their own personal financial problems, are saddled with debt and stagnant wages. Many Millennials are largely unable to afford children, and many are putting off marriage and children altogether. GenZ is following suit: many Gen Z are having trouble (for various reasons) even getting their first job out of college. The focus for many governments in the west has primarily been on the Baby Boomer cohort, which diverts a large amount of spending on healthcare and pensions for the older generations. They are, after all, a much larger voting bloc than the younger generations combined, so it’s no surprise that governments are more in tuned with catering to the other generations, rather than the younger ones, who are struggling. With all of the money spent on the Boomers, that money could be otherwise earmarked for education, affordable housing, and employment programs for younger generations.

Gen Z/Millennials are facing a bleak economic future: it will never be as good for them as it was for their parents, the Baby Boomers. At least, that is how many of them often feel, as a decade of rough economic waters has caused nothing but headaches for Millennials/Gen Z. This has been an ongoing issue since the ’08 recession.

Tax Implications:

Canada’s tax policies don’t help Millennials: the average 35-year-old pays around 20%-40% more in the way of taxes than the average boomer did at the same age.

The American Perspective:

Student Loan Debt Crisis:

In contrast to Canada, American Millennials and Gen Z carry an overwhelming burden of student loan debt, with research reporting that 34% of young adults aged 18-29, owe the most in student loans. This is one of the biggest reasons as to why Millennials and Gen Z in the States are struggling financially; the astronomical pile of debt they’re under adds to their financial stress.That may be slowly changing, with many Gen Z in recent years simply shunning college in favour of the trades or other professions right out of school.

Canadian and U.S. students struggling with loans
Canadian and U.S. students both wrestle with student loan debt – in different ways

Wealth gap among Millennials:

In the United States, there may be more systemic inequities that keep younger non-White Millennial/Gen Z from earning the same amount of wealth as their White counterparts. White households in the U.S. generate more wealth than their non-White counterparts. This can further skew the gap among Millennials.

Real Estate Challenges:

Just like their counterpart to the north, most of the high-paying jobs are in major hubs: San Franciso, New York, etc.) Increasing interest rates, a limited supplyof house (not to mention the absurd cost of ever-increasing rent), stagnant wages, etc., are all the same factors affecting their northern peers. Renting itself is fraught with its own challenges – in the same way it affects Canadian Millennials.

Comparative Challenges for Canadian and American Millennials and Gen Z:

Housing Affordability:

  • Canada: High property values in cities like Toronto and Vancouver (and to a lesser extent, Quebec -where rental rates are also increasing) are driven by limited supply and foreign investment.

Higher Education Costs:

Economic Policies:

  • Canada: Universal healthcare (which is fraught with its own problems) and fewer systemic inequities as compared to the U.S., provides a slight financial edge for Canadian Millennials/Gen Z.

  • United States: A lack of universal healthcare and greater economic disparities than in Canada all cumilate to create additional hurdles when it comes to financial independence. Then there’s the added racial gap.

Canadian Millennials appear to be coming out on top over their counterparts in the south. But perhaps, not by that much. The cost of living can be relatively cheaper than in Canada, depending upon where you live.

How Millennials and Gen Z Are Preparing for the Wealth Transfer:

Diversifying Income Streams:

Canadian and American Millennials both have one thing in common: many are getting by with more than just one full-time, 9-5 job. Freelancing and side gigs are becoming more and more popular to stay afloat.

side hustles are common
Millennials/Gen Z are more likely to have side hustles than their older counterparts

Side gigs through Uber, Lyft, or Task Rabbit are becoming common. Additionally, because many Millennials and Gen Z are coming out of university/college, degree in hand, they are saturating a market already flooded with young people, all with degrees. The job market is not only weak, but it’s flooded with young people looking for jobs, and many jobs have hyperinflated requirements. That is not even going into the problem of ghost jobs. Just getting a job for many Millennials and Gen Z is becoming an ordeal, in of itself.

That’s not even getting into the fear of automation.

Investing in Education and Upskills:

To add additional credentials to their portfolio, many often go back to school to complete their masters, or complete certifications or other courses to further upskill their abilities.

Financial Literacy:

A growing awareness of the importance of financial literacy is encouraging younger people to learn about investing, budgeting, and estate planning. Tools like robo-advisors and budgeting apps are helping them take control of their finances.

Many younger people are widely believed to be tek-savvy: many rely on YouTube, Facebook, Instagram, or TikTok for their news and advice: the world of finance is saturated with “Crypto-bros” and “financial advisors” dragging younger (naive) people into the world of quick get-rich schemes, pump-and-dump frauds, and luring young people (mostly young males) into purchasing their “financial courses.” Social media influencers, of course, are no different, with many peddling their products to (mostly) young women, to buy their items.

With the plethora of financial advice out there, it’s important to take it all in with a grain of salt: both “crypto-bros” and financial advisors like Dave Ramsey and Kevin O’Leary do not always give the best advice; online influencers are not always the best people to look up to for financial information. Dave Ramsey, for instance, has been cited as giving outdated advice, while Kevin O’Leary lectures younger people on “getting back to work.” Both millionaires offer “advice” that is largely considered either self-serving or outdated. It’s always best to consult with a financial advisor on your own (after doing through research).

Amid the landscape of junk-filled social media posts, there are some diamonds in the rough when it comes to financial planning: budgeting apps can help keep track of spending, and there are always gems of advice from people on how to pay off debt, from people who have already done so. Perhaps focusing on free financial advice on how to managing debt and savings (without going into debt yourself) may help.

The Role of Baby Boomers: Preparing for the Wealth Transfer:

“Living Inheritances:”

Many Boomers are opting to give “living inheritances” – gifts – to their kids while they’re still alive. Inheritances include helping with down payments on homes, funding higher education, or helping their children pay off their student loans. It’s essentially a way to gift their children, to help them reach their goals. 31% of first-time homebuyers in Canada are receiving assistance from their parents to purchase their homes.

Millennials and Gen Z are inheriting money to help them while in their prime
Millennials and Gen Z are getting “living inheritances” from their parents

Transparent Estate Planning:

It goes without saying that open and honest communication (across all generations) about estate planning is important. Boomers are increasingly engaging in being transparent with their families and their children about setting up trusts, drafting wills, and seeking professional advice to minimize their taxes. Tax liabilities might have some issues that you may not have considered.

If you’re a Baby Boomer, just rip the bandaid off and have the tough discussion with your family about why your stuff is going where it’s going when you’re gone. That way, hurt feelings will be eliminated by the time it comes to read to the Will when you pass away. Best to have the discussion as soon as possible.

Looking Ahead: The Future of Wealth in North America:

The great wealth transfer sounds nice in theory, in practice, a study showed that 61% of Millennials in Canada were banking on the great wealth transfer from their parents when they passed away, but only 31% of parents felt able to leave their kids anything. Baby Boomers, like everyone else, are being squeezed by the cost of everything. The great wealth transfer offers both opportunities and challenges for Millennials and Gen Z, but what about those who don’t have parents to help out, finanically? The idea of a meritocracy in Canada and beyond is already fading; the generational wealth transfer could put a nail in the coffin altogether. People no longer believe that “hard work pays off.” In the future, policymakers, financial institutions, and families must all work together to ensure this wealth transfer promotes equity and stability for future generations.

Easier said than done, eh?

Key Takeaways

  • Baby Boomers are transferring $84 trillion in wealth in the U.S. and $1 trillion in Canada
  • Housing affordability and student loan debt are primary barriers for Millennials and Gen Z
  • Systemic inequities in the U.S. have already exacerbated the wealth gap among Millennials/Gen Z
  • Canadian Millennials benefit from universal healthcare, but continue to face high property costs
  • Financial literacy, estate planning, and economic policy reforms are crucial for the upcoming transfer
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A sibling inheritance dispute? Not so fast..
sibling inheritance dispute

A woman (let’s call her “Marge”) wrote into an advice column about the fallout over her sister’s inheritance. Unlike most of the stories we’ve written about inheritance, “Marge” wasn’t exactly upset about it. In fact, she was glad that her sister inherited everything from their late mother. Unlike other articles, this isn’t about a typical sibling inheritance dispute. Not at all.

According to “Marge,” the mother left everything her sister, “Charlotte,” and “100% earned it,” for all the care “Charlotte” gave their ailing mother. “Marge” explained that the mother’s personality of “throwing tantrums” had a cumulative effect of a) forcing multiple carers to quit, and b), escalting to the point of getting kicked out of multiple senior homes (three, to be exact).

Someone like that would naturally be very difficult to deal with: “Marge” kept limited contact with her mother, limiting their interactions to holidays and supervised visits. “Charlotte” on the other hand, stepped-up, took care of their ailing mother, and even organized her schedule around doing so. To take some of the burden off “Charlotte”, “her sister “Marge” would always watch her neices and nephews, while “Charlotte” took care of the mother. In this way, everyone was involved in taking care of the family.

After the mother’s passing, “Charlotte” was rewarded with an inheritance large enough to treat both herself and her children: galivanting about on trips and buying her children nice toys. No hard feelings on “Marge’s” part, no sibling inheritance dispute here, but “Marge’s” children want to know how to explain this turn of events to her own children, who now are asking why they can’t go on the same nice vacations, have nice toys like their cousins, or worse yet, why grandma didn’t leave any money to “Marge.” “Marge” is befuddled about how to handle this delicate situation, and wants advice. There was no mention as to how old her kids are, and how much “Marge” can tell them.

It’s a thorny situation: ideally, “Charlotte” would be including her neices and nephews into mix, perhaps buying them in a nice toy or two, but ultimately, she did earn the inheritance. She can spend it the way she wants. No doubt, “Marge’s” children would question the money either way.

The answer the sister was given:

“Marge” was definately taking the high road, and thankfully, wasn’t upset about being essentially disowned by her difficult mother. “Charlotte” did all of the heavy lifting, and while she doesn’t begrudge “Charlotte” at all, the issue lies with how her own children are taking the issue regarding the money.

Perhaps some would tell “Marge” to just come out and be honest with her children about the disinheritance. However, “Marge” was provided with an entirely different path:

“Marge” was told that she may not want to break the news to her children yet, at least not until they were older. All “Marge’s” children really needed to know, was that “Charlotte” was given grandma’s money to pay for some nice things, and that “Marge” wasn’t, because she and grandma weren’t as close as “Charlotte” and grandma were. “Marge” was further advised to tell her sister that she was going to have this conversation with her kids, and it might lead to her kids talking to their cousins, which may bring up a (further) uncomfortable conversation among the entire family.

All in all, despite the fact that “Marge” wasn’t close with her mother, everything does sound wholesome: there was no animonisty between the siblings, no split between the sisters, no jealousy on anyone’s part, just sisters helping each other out when necessary.

It’s a refreshing inheritance story that (thankfully) doesn’t involve any sibling inheritance dispute. One of the few stories that we’ve written about where an inheritance doesn’t lead to a battle among family members.

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The Pitfalls of Becoming an Executor
A man stands in the foreground, while his family grieves their loved ones.

Taking on the role of executor might sound respectable, but do you know what the role actually entails? The role is far more intricate and challenging when you look into what it actually entails. If you have recently been named as an executor of an estate, it’s important to carefully evaluate the the legal, financial, and emotional difficulties that can make being an executor more complex than you initially anticipated.

1. Legal and Financial Responsibilities of an executor:

An executor is legally responsible for maintaining and distributing the estate of the deceased (obviously in accordance with his or her Will). Because the executor has to be in compliant with government laws, it’s important to know what he/she is doing. The role involves filing out court documents, notifying beneficiaries, and managing the debts and taxes for the estate of the deceased. Executors can run into complex legal requirements, and those complexities can lead to potential mistakes. This can delay dispersing assets to the right heirs.

In short, you REALLY need to know what you’re doing in your official capacity as executor.

2. Time and Resources:

Executorship is a time-consuming process: coordination with accountants, attorneys and beneficiaries is all a necessary part of being an executor. Depending upon the complexity of the estate, completing all of your duties can take several months (or even years) to close the estate. Executors have to deal with their own personal responsibilities, fill out the proper estate documents, attend meetings, etc. The duties of an executor are akin to a full-time job: a “job” that can take up about 100 hours (or more) and 12-18 months, to finally complete.

You may want to start with a team of individuals behind you: if you’re not a lawyer, and you need help in to manage your duties, you may wish to start with getting an estate planning lawyer to help you out. An estate planning lawyer can assist in dealing with unreasonable beneficiaries – beneficiaries who may dispute the prescribed amount of money they were designated by the deceased. An accountant can help you manage the ins-and-outs of filing estate administration taxes, correctly and on time, while simultaneously assist with paying off any outstanding loans (or debts) on the estate. A financial advisor can help manage asset distribution. A real estate agent can assist with selling any property the deceased may have wanted sold.

You can see the importance of having a whole team of people behind you.

You may have to take time off work to become an executor.

3. Family Dynamics and Emotional Strain:

In addition to all of the legal and financial duties of an executor, the role is definitely going to be emotionally draining, because the executor is usually a family member of the deceased. Combined with the added element of grief, this can lead to disagreements between beneficiaries (who may or may not be siblings of the executor in question). A lawyer may be able to assist with unruly beneficiaries who want to battle it out in court over the deceased’s estate and assets.

When it comes to money or sentimental items, tempers and emotions may flare.

4. Potential Financial Risks:

Executors could face the possibility of being held personally liable if financial assets are mismanaged; there are financial risks to consider: mismanagement of estate funds, filing taxes on time, and paying off debts.

One benefit of being an executor is that you can be compensated for your time as an executor: the Trustee Acts in Canada outlines instructions for executors to be compensated for their work. The provinces do have their own rules as to how executors should be compensated. The CRA upholds that any compensation received by an executor is to be taxed as income.

Even that comes with risks: some family members may have difficulty with giving one sibling compensation, running the risk of favoritism.

Nonetheless, everyone should be paid for their work.

This isn’t even going into the headache that Probate could bring.

Whether or not you decide to take on the role, take into account everything that the responsibility holds. That includes both the benefits and the potential pitfalls.

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Helping families ensure smooth wealth transfers
Four adult family members dressed in formal attire sit closely together in a living room, to discuss matters of inheritance

The great wealth transfer is currently underway: millennials/genz are finding some financial relief with some money trickling down their way from their boomer parents (this brings up an entirely different topic on the problem of generational wealth). For now, some millennials/genz have some money coming their way; this can go a long way to keeping some money in their pockets, given the absolute shamble of an astronomical cost of housing/rental market, sky-rocketing student loan debt, and a weak job market. Some millennials and genz are even getting “living inheritances” from their parents. The stigma that usually surrounds topics of dicussion around money and inheritance are slowly fading away – it’s no secret that income inequality is growing, and people are more open to talking about money, debt and loans. Having solid discussions surrounding inheritance and money can, at the very least, soothe any hurt feelings. You wouldn’t, for example, want one sibling questioning as to why he/she is getting less inheritance than another, so that’s why talking about it openly (no matter how uncomfortable) can really help out your family members.

A whopping $1-trillion is set to be passed down to millennials/genz in Canada by 2026. This unprecedented shift, happening one family at a time, creates the need for tailored financial advice. Obviously, parents are going to be wary about having their money being blown. This is why talking about money and the need to spend, save and invest it wisely is so crucial.

Wealth transfers are full of opportunities – and challenges. Keep these following strategies in mind to ensure a smooth process:

1. Start Open, Transparent Conversations Early:

One of the most vital, yet often overlooked, aspects of wealth transfer is open communication. When wealth transfer is shrouded in secrecy, it can lead to feelings of resentment and rumours among family members. It can cause fights and breakups. You may want to start by initiating the important (yet, somewhat uncomfortable) conversations surrounding money, your legacy, your estate plan, etc. Open and honest expectations for everyone involved means you’re off to a GREAT start.

Four adult family members dressed in formal attire sit closely together in a living room, to discuss matters of inheritance
Adult family members come together to have a meaningful discussion on matters of wealth in the family

Here are some steps to initiate those conversations, if you’re feeling uncomfortable:

  • Regularly scheduled meetings with key members of your family (children, spouses, trustees)
  • Discuss what you want to do with your money, your assets, your estate, and why
  • You may want to involve a trusted financial advisor or estate planner to help ease into these (difficult) conversations

2. Drafting a Comprehensive Estate Plan:

A comprehensive estate plan includes a Will, trusts, a Power of Attorney, a Living Will, and other principal documents. It also involves a comprehensive strategy about minimizing estate taxes, and other important decisions regarding your assets.

Boomer looking over payments
A parents looks over his Living Will

Here are some steps to initiate the process:

3. Minimize your taxes:

Estate taxes can significantly reduce the wealth transferred to your heirs. Therefore, reducing taxes when it comes to planning your estate is integral.

Father doing his taxes
A father furrows his brow as he goes over his taxes

Here are some steps to minimize taxes on your estate:

4. Succession Planning for Family Businesses:

Obviously, succession plans are necessary for family buisnesses to run. Without a succession plan in place, there is the possibilty of a family business being poorly-managed or fall apart without your prescence.

Parents over looking their succession plans
A couple looking over who will take over their business

Here are some steps to initiate the process of succession planning for a family business:

  • Identify the best individuals to run your family buisness (a child, star employee, etc.)
  • Training and mentorship are provided to said potential heir to the buisness. Mentorship is key
  • A succession plan with documented roles, responsibilities, etc., – are all provided – a training manual, if you will
5. Financial Literacy:

Obviously, coming into a sudden inheritance can be both a windfall and a hazard – a windfall to help you out if you’re struggling financially, but it can be a potential hazard if you just end up blowing your inheritance. Whether it’s a “living inheritance” or an inheritance your children receive upon your death, follow the steps below to help guide your family:

Estate Planning in Canada
No matter how young or old, it’s best to always review your estate plan

Here are some steps to initiate the process:

  • Encourage your children to attend financial planning sessions – they’re not only for the rich
  • Plan strategies through your trusted family’s financial advisor; someone who your children (or heirs) can depend upon. Later, they can switch to a different advisor, if necessary
  • Instill certain values: fiscal responsibility, philanthropy, prudent investments, wealth preservation
6. Review and Update Your Plan Regularly:

Life changes, and so should your estate plan: review it on an annual basis (don’t try to leave it on the backburner – we have had many clients who often leave creating their Will, Power of Attorney and Living Will to the day right before a vacation). Make sure everything is properly written out – don’t rush it!

family overseeing their estate-planning documents
Parents carefully reviewing and updating their Will, Power of Attorney and Living Will

Here are some steps to initiate the process:

  • Review your estate plan on an annual basis – perhaps once a year
  • Discuss modifications with your financial advisor, to keep abreast of changes in the law
  • Coordinate and discuss changes to your plan with your family members, so there are no surprises

An intergenerational philanthropic strategy:

This isn’t really part of your estate-plan, but you may want to look at the importance of philanthropic giving.

Philanthropic giving towards charities or causes you really respect or admire is always a good strategy of estate planning. It’s about giving back, and shows your loved ones the importance of being charitable.

man holding dollar bills
What would you do with your inheritance?

You can have a open and honest discussion with your family members about which causes they would like to support and why. How much of your estate would go to those causes? This can bring everyone together in the estate planning process as well.

You may want to read more about easing into smooth wealth transfers, here.

https://www.theglobeandmail.com/investing/adv/article-these-four-strategies-can-help-families-ensure-a-smooth-wealth/
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