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Wealthy Canadians not sharing inheritance details with heirs

Canadians are expected to inherit a lot of money over the next decade or so but many of them will be ill-equipped to manage their new financial windfalls.
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Canadians are expected to inherit a lot of money over the next decade or so but many of them will be ill-equipped to manage their new financial windfalls.

Part of the reason for this lack of preparedness may be because the majority of affluent Canadians are keeping their heirs in the dark about their plans to pass on their wealth.

A poll by IPC Private Wealth of Investment Planning Council has found that 58 per cent have not discussed instructions for their estate with their heirs, of which 12 per cent do not plan to talk about their inheritance plan with their beneficiaries.

The Toronto-based research firm Strategic Insight estimates that some $1 trillion in personal wealth will be transferred from one generation to the next in Canada between 2016 and 2026, roughly 70 per cent of that being in the form of financial assets.

The poll found that 32 per cent of affluent Canadians say they are worried about how their heirs will handle their inheritance, with 36 per cent saying their children don’t have the financial literacy to manage a potential windfall. Fewer than one in five Canadians say they have introduced their children to a financial adviser or have taken them to a planning meeting with the person currently managing their money.

Another recent study for Edward Jones found that a large gap exists between what Canadian Boomers are planning to leave to the next generation and what that next generation is expecting —- many Canadians are not expecting a significant inheritance and are not including an inheritance windfall into their financial plans.

“This is all quite shocking considering the magnitude of the amount of money involved,” Paul Wylie, senior vice president of business development at IPC Private Wealth said in an interview. “The fact of the matter is that most people are ill-equipped to handle estate inheritances, particularly from a tax perspective. The heirs get their money and then what? In many cases they may go to their old advisers but they might not get sufficient advice to help them manage the money tax effectively.”

Wylie likens receiving an inheritance to winning the lottery. In many cases lottery winners have gone through their winnings after three years. “Often it’s because people revert to their old ways and their old relationships and don’t get the proper advice on how to manage this new-found wealth,” he says.

IPC has developed a program called First Call designed specifically to help high net worth individuals and families by giving them access to a wide range of experts and services such as investment management, accounting, estate planning, asset protection, legal, business advisory, philanthropy, elder care and other planning needs.

Through the program clients can access international tax services for Canadians doing business in the U.S., mergers and acquisitions, accounting for U.S. income taxes, corporate tax planning, family tax minimization, tax compliance for estates and beneficiaries, tax planning for family trust returns, estate planning, banking and mortgages and even travel consultants for personal vacations and business travel.

“The amount of wealth being transferred is growing through businesses, real estate and corporate stock plans,” says Wylie. “Because the wealth is getting so big the implications of cross border taxation are going up. Advisers in the program can identify specialists, even in local areas and communities.”

Inheritance is an important issue and it’s a good idea to have a conversation about it in advance of illness or accident.

“The topic of inheritance is an important issue that requires communication to help the next generation succeed in handling new found wealth,” says Sam Febbraro, executive vice president of Investment Planning Counsel. “Children need to understand their parents’ financial objectives for the money that they are leaving behind so they can continue their legacy. It’s important to have that conversation when parents are still healthy and everyone is calm as opposed to making decisions in a time of crisis when emotions are high.”

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.