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/
Man Excited by Windfall

You’ve got $50 million dollars – as the title implies. What do you do with it? Before you go blowing it all on a fancy cruise vacation, new house, BMW, new car, or yes, avocado toast, take some time to collect your thoughts and let the fact that you’ve inherited a fortune sink in. That’s what Ken from Sacramento did. After inheriting $50 million dollars from his parents, he called into the Dave Ramsey show to gain some perspective on how to manage his money. You can learn from Ken on what to do if you ever wind up in the same situation. Here are a few tips on managing inheritance that we’d like to share:

Stay calm and don’t be in a rush to spend your money

See professional advice

Set clear financial goals

Pay off debts and pad your emergency fund

Invest your money wisely

Don’t blow it all

Giving back

1. Take a Breath and Don’t Rush

This one should be obvious: don’t rush to blow it all. When Ken reached out to the Dave Ramsey show about how to spend his $50 million dollar inheritance, Ramsey offered the following advice: spend some, save some, invest some, give some of the money to charity, etc. The news of an unexpected inheritance can be overwhelming, triggering a flurry of emotions. Try to adjust to your new financial reality before making any rash decisions.

2. Seek Professional Advice

One of the first things you may want to do is to seek out professional advice from a financial advisor. While Ken Consider consulting with a financial advisor, accountant, or lawyer who specializes in inheritance matters. That is why the caller called into the Dave Ramsey show: to receive advice from a professional on what to do with his inheritance. A financial advisor can help you grasp the full picture of dealing with taxes, investments, any fees, bills to pay off, debts, etc. An advisor can offer the best strategies for managing or investing your assets. A financial advisor may also help you tackle paying for everything in this era of high inflation. You may want to consult with an advisor you are really comfortable with, and who you have a good relationship with. You don’t want to stick with the SAME advisor just because that particular person is someone who your parents used (IF your parents had one).

3. Set Clear Goals

Once you’ve gathered the necessary information, it’s time to set clear goals for what you want to achieve with your inheritance. You may want to look at paying everything off you owe before deciding to (wisely) use the money to invest, renovate your house, travel, etc. Specific goals are the key: whether it be diversifying your portfolio, or planning your estate.

4. Pay Off Debts and Build Emergency Fund

This one goes without saying: If you have any outstanding debts (student loans, credit card debt, etc.), consider using a portion of your inheritance to pay them off. Even if you comb through your finances with a financial advisor, you still shouldn’t touch that money and just brazenly spend it all. When you pay off your all of your debts, you can relax and focus on investing for the future. It’s a practical way to secure your financial future and relieve the burden of debt. It’s also good to prioritize an building up an emergency fund to cover unexpected expenses. You don’t have to have a specific amount between three to six months of savings, but if you have an inheritance and are looking to save for the future, it’s always wise to do following: pay off debt and have an emergency fund. It sounds obvious, but when you actually have access to the money, it’s tempting to simply blow it all. You might also underestimate how much money you really need to live on and invest for your future.

5. Invest Wisely

Consider diversifying your inheritance into investments to mitigate risks and maximize returns. Consult with a financial advisor to develop an investment strategy. Whether you invest in stocks, bonds, real estate, or put money into mutual funds, TFSAs, or RRSPs, make informed decisions.

6. Plan for the Future

Once you have used that money to plan for YOUR future and invest wisely, you may also want to spread the wealth (to your family members and loved ones, that is). You may want to use some of that inheritance to fund your children’s education. You may not have a million to your name, but estate planning is always valuable. Take the time to create or update your estate plan, including Wills, trusts, and beneficiaries. Planning ahead ensures that your assets are distributed.

7. Enjoy Responsibly

It sounds like a beer slogan, but it’s true: enjoy your money responsibly. Treat yourself to something special, but avoid overspending or making impulsive decisions that could deplete your inheritance. Stories abound about lottery winners who blow through their money within a decade and wind up broke. If you’re not careful, the same could happen to you, regardless of how you come across your windfall (i.e. lottery or inheritance).

8. Give Back

Lastly, many people who have their Wills drawn up often consider leaving something for charity. Many people do this in their Wills, but if you ever come across a significant windfall, you may want to consider donating the money right away. That money you donate will surely have a meaningful impact on others around you.

Whether you inherit a million, or a small windfall, just be sure to manage it carefully.

Be sure to seek out advice, like Ken from Sacramento.