Bequest boom! Intergenerational wealth transfer

The Ritcey Report

November 15, 2016

Based on several authoritative sources, we thought you might be interested to know that Canadians between 50 and 75 years old are poised to inherit $750 billion over the next decade, the largest intergenerational wealth transfer in Canadian history.

According to economist Benjamin Tal, the average net worth among the 2.5 million Canadians currently aged 75 and up has risen 30 per cent between 2005 and 2012, money that the generations coming behind them are set to inherit.

Most inheritances go to Canadians that are already in higher income brackets, with average inheritance for those who earn more than $100,000 almost three times higher than among lower income Canadians.

And while approximately 40% of higher-income households who received an inheritance manage to save or invest it, that’s not what happens in lower-income households. In these cases, often very limited inheritances typically go towards living expenses and paying the bills.

Intergenerational wealth transfer is a two-way street, involving the creation of a fair legacy for one’s children, minimizing taxes on existing wealth, and ensuring financial security for future generations.

We have helped innumerable individuals and families negotiate this – sometimes tricky – terrain by counseling our clients to consider four (there may be others) key issues:

  1. Estate planning – ensuring an estate is distributed in a fair and tax-efficient manner.
  2. Tax minimization – helping improve after-tax investment returns through, for example, income splitting and tax-deferred investing.
  3. Retirement income planning – creating, particularly if the intergenerational assets are derived from a family business, a tax-efficient Individual Pension Plan.
  4. Education savings – creating a family trust for tax-efficient education savings supported by education payment options.

For those of us fortunate enough to be in line for a sizeable inheritance, there are several potential – and quite complex – issues to consider, the resolution of which requires professional assistance.