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Spreading the wealth: Intergeneration wealth transfer and what it means

The largest transfer of wealth in human history, amounting to trillions of dollars around the world and billions in Canada alone, is approaching fast.

The generation of baby boomers, who were born between 1946 and 1965 and are the richest cohort in history, will be handing over a lot of what they have built up to their children and grandchildren over the next decade or two.

Wealth distribution at that level brings with it a lot of factors to consider.

Today’s seniors live longer and are more active

For one, people in Canada are living longer – 79 years for men and 83 years for women, according to Statistics Canada. That means even though boomers might have more money than the generations before them, they also have to make sure their money lasts. A recent report by the World Economic Forum found that many Canadians face outliving their savings past retirement by as much as a decade.

Also, just because Canadians are living longer, that doesn’t mean they’ll live in good health. Extra costs such as home care need to be taken into account when they are considering retirement planning and giving inheritances.

Seniors also seem to want to work longer, with one in five aged 65 and older, or nearly 1.1 million, continuing to work in some form, according to the latest census figures. That means that they are continuing to amass some wealth and dipping less into retirement savings.

Baby boomers are also active, and less likely to conform to the stereotype of living out their golden years in a rocking chair. Many want to live out their passions, travel and spend some of their money in their post-retirement years. They make up 25 percent of the population (outpaced only by the millennial generation, born between 1972 and 1992 and making up 27 percent of the population) and have enormous spending power.

What do they plan to spend their money on?

So, boomers have a lot of wealth and have good reasons for spending a lot of it on themselves. That is important for them to take into account when planning for their post-retirement years and when considering handing over some of their wealth. At the same time, they have to consider the impact of inflation and any unexpected downturns in the market as they age.

One interesting thing about the baby boomer generation is that many are planning to give away a lot of their money before death and not as inheritances after it. They are choosing to help their children pay down debt, buy a home or invest in their own futures and families.

Millennials, for instance, are increasingly in debt. The cost of education is higher and, especially in markets such as Vancouver and Toronto, housing prices are out of reach for many without a helping hand from Mom or Dad.

There are also tax benefits. Canada has no gift tax so any money you give to children or grandchildren won’t be taxed.

Creating a plan for wealth transfer

With all this in mind, it is important for anyone considering retirement planning or giving away money to children or charities to have not only an estate plan but a wealth transfer plan. An estate plan is an arrangement for the transfer of all you own after death, whereas a wealth transfer plan is for shifting wealth to next generations before you die.

There are benefits to creating a wealth transfer plan. It allows you and your heirs to prepare for how best to deal with any windfall of money, and offers an opportunity for the next generation to be financially literate and handle wealth transfer responsibly. You’ll need to consider the best approach for you and your family and seek professional legal, tax and financial advice. It is also important to consider how you will communicate your plans and intentions to family and friends.

 

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