Canadians who expect to inherit money may not end up with as much as they hope to receive. A considerable portion of the trillion-dollar transfer of wealth that Canadians look forward to getting in the next 20 years could be used to fund the retirement years of the preceding generation, according to Christine Van Cauwenberghe, Investors Group’s Winnipeg-based director, tax and estate planning.
An Investors Group online poll conducted in January found that 45% of Canadians aged 60 and older are concerned that they will need their savings to fund their retirement and won’t have money left for their survivors.
“And a good part of it could be eaten up by estate taxes,” Ms. Van Cauwenberghe said in a recent interview. “Just because Mom and Dad have assets of $300,000 doesn’t mean that’s the amount you’ll receive. It could be $200,000. It could be much less.”
The poll found that more than half of those surveyed expect to receive inheritances, but not all of them know how much money they will actually get. Of those who do know the amount, 57% expect to receive more than $100,000.
New family structures resulting from the trend to divorce and remarriage in recent decades will also tap inheritances, Ms. Van Cauwenberghe said. “Second and third spouses, and their children will mean that the inheritance pie will be carved up into more pieces.”
She cautions against factoring an inheritance into a financial plan. “I tell clients that they need to take control of their own finances,” she said. “They should consider an inheritance a windfall, like winning a lottery. If it doesn’t materialize, they will still have to educate their children and fund their own retirement.”
Communication within families is key to clearing up misconceptions, she added. “It’s smart for beneficiaries to know what they can expect so they can plan accordingly, and family dialogue is a good place to start.”
The poll, however, found that 61% of Canadians whose deceased parents had made wills were never privy to the details during their lifetimes.
Reluctant to reveal details
“People are reluctant to pin down the actual dollar amount that they are leaving to their survivors,” Ms. Van Cauwenberghe said. “Many consider this to be confidential information. And some parents believe that knowing that they stand to receive inheritances will hamper their children’s ability to realize their full potential.”
She encourages her clients to discuss their estate plans with their children. “Maybe not the actual dollar figures,” she said, “but they can discuss the terms of the will in general terms so that there will be no big surprises. They can talk about how their estate is structured, and whether bequests will be given immediately or when the beneficiaries reach a certain age. They can discuss their plans to donate money to charity or other organizations in their wills. And they should talk about their specific estate-planning objectives such as protecting assets through testamentary trusts in the event that beneficiaries go through divorces. They will also want to ensure that individuals with a gambling or drug problem do not come into a large lump sum of money.”
The poll found that expectations of inheritances decline with age. While 80% of Canadians between the ages of 18 and 29 expect to come into money after the deaths of their parents or other relatives, only 62% of those aged 30 to 44 look forward to inheritances, and only 48% of those aged 45-64 assume that they’ll inherit.
This can partly be attributed to the fact that the older people become, the less likely it is that members of the preceding generation will still be alive. “And people also become more realistic as they get older,” Ms. Van Cauwenberghe said. “They know what kind of expenses their older relatives have to meet, and they realize that they’re not the only ones in the family who stand to inherit.”