The Pig and The Python – Inter-generational wealth transfer.

Depending on which set of statistics you read or believe, some multiple trillions of dollars are going to change hands over the next decade or so in Canada.  From grandparents – the Zoomers to parents – the Boomers to children – Gen X – the grandchildren and maybe the great-grandchildren – Gen Y.

It will be interesting for sure, so the purpose here is to provide an overview of some of the issues that confront that first generation – the Zoomers.  These people have been around, in many cases, through the 1920s and the dirty-thirties.  They worked hard for everything they had – there were no handouts.  They inherited virtually nothing from their parents – maybe a bit of a homestead if they were very lucky.

They sacrificed constantly for their children – everything they did was for the children and they went without most of the luxuries of life that most people (right down to the Gen Ys) now take for granted.  But the Zoomers are worried.

Most of my clients are Zoomers and range in age from 93 down to their early 70s.  Almost without exception, they are asking this question:  “What do I do with my money?  I worked for it and don’t want to see it wasted.  I raised them, what more do they expect?”  Their words, not mine.  They talk about their children of course – the Boomers, and often their grandchildren and sometimes even the great-grandchildren, but they are having difficulty rationalising giving away their money and assets.

The Zoomers have all too-often seen that other people who inherit money don’t seem to treat it with respect – they “blow it”, “waste it”, “they didn’t appreciate it” and “p__sed it all away”.  Whether or not these are valid descriptions depends, of course, on your own perspective.  But reality or not, that is the perception of a very high percentage of seniors.  The question now is, therefore, how can they pass it along and have some assurance that it will be more wisely used?

We can’t control everything in the future or how people choose to use an inheritance.  However, we can provide some guidance and even restrictions, in the form of either a formal document – such as a Will or Trust Deed – or informally by meeting with your planned heirs while you are still kicking around and outlining your beliefs and expectations.  You might consider leaving each heir a letter along with your Will.

Whether your legacy involves investments, real estate, insurance or collectables, take the time to think carefully about who would benefit most and who you feel would respect your trust in them to carry on wisely with that which you built.  Your Will is a valuable tool – and a well-trained and experienced family and estate lawyer is your best ally as you prepare this document.  Remember, you don’t have to give everything away at once or in a lump sum – you could let some people use the asset or receive part of the income and then pass any remainder on to another generation or heir, or perhaps a charity.

Trusts – whether Testamentary (created in your Will) or Inter-vivos (created during your life time) – are excellent tools for many people and for several reasons.  First of all, your Will becomes public knowledge when it is probated – anyone in the world can see it, see your assets, your debts and see who received what.  Inter-vivos Trusts on the other hand are completely private.  No-one other than your named Trustee knows what assets are in the Trust or how they are disbursed.  Another issue is that it is possible for your Will to be contested by a disgruntled heir – or someone who thinks they should be an heir, whereas there is no right to contest an Inter-vivos Trust (in the absence of fraud!).  A final issue is that under most Provincial and Territorial Legislation, you are required to treat all beneficiaries with in a class (children are on class, siblings are another class, grandchildren, etc.) equitably – not equally, just equitably.  There is no such requirement with an Inter-vivos Trust.

Trust law is a relatively narrow speciality, so question your legal advisor about their preferred areas of practice and expertise before you allow them to work on your behalf.  Obviously, I haven’t covered all possibilities here but I urge readers to take the time and discuss these issues with your spouse and your potential heirs before you contact your legal advisor.  Your financial planner is also an important resource when considering your legacy – and don’t wait too long!  Mother-nature has a habit of catching up to us sooner than we expect.

James Dean

James Dean - President ~ Money Canada Limited (MONEY.CA)