Financial Planning
How can I provide a financial legacy for my children and grandchildren?
Category: Financial Planning

In Canada there is expected to be a significant wealth transfer over the next 20 years–worth approximately $1 trillion.[i] Those fortunate enough to have wealth greater than what they need during their lifetime often want to help the younger generation by leaving an inheritance – the question is HOW?

Parents and grandparents are alike in that they want to instill strong work ethic and values in their kids, while giving them a helping hand. Many worry that transferring substantial wealth to their grandchildren could have negative intended consequences. If not done properly wealth transfer could reduce their ambition, and motivation or be spent meaninglessly. As the beneficiaries did not have to work for their inheritance- the sudden influx of wealth needs to be managed. Each person has different values which are important to them and that they hope the next generation will carry on.

In thinking about the transition of wealth to the next generation we have outlined some considerations which could strengthen your financial legacy.

Start the conversation early

Many families avoid talking about finances at death and expectations as it is a rather daunting subject. Discussing your values and estate plans with your beneficiaries early on could help to smoothen the transition by tempering their expectations and preparing them for wealth. It also gives you an outlet and discussion point to encourage them to use their inheritances with a purpose. Furthermore, it gives you the opportunity to highlight how you attained your wealth and the values you learned along the way.

Giving doesn’t have to be at death

Gifting smaller amounts to your grandchildren today allows you to control or supervise their spending. For example you may want to gift cash to your adult grandchildren but specify that they use the gifts to contribute to their TFSA. This helps to provide for their future while also teaching them the importance of saving money and managing capital. Another common gifting strategy is to give them a set amount to use to pay down their mortgage, this will benefit them in that they have the opportunity to save the decrease in their mortgage payment for the future. Furthermore- gifting assets which you don’t need to support your lifestyle today will reduce the tax bill in the future especially if they are used for the above purposes.

Educate the next generation

By opening the discussions with your family it will help to understand and maximize the true value of your family – the sum of its human, social and intellectual capital. By articulating these values and opening lines of communication your legacy could be passed down by each generation.

[i] The Canadian Inheritance Study, Decima Research, 2006. “BMO Passing it on: what will the future inheritances look like.”

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