Did you know that $400 billion in wealth is expected to transfer hands within a generation in Canada and upwards of US$4 trillion throughout North America and the UK?

RBC Wealth Management recently conducted research on the importance of multi-generational wealth planning. Our research shows that almost 60% of Canadian parents don’t feel confident their children are in a position to preserve, grow or manage their inheritance.  Many young Canadians find themselves taking on financial responsibilities before they have a solid understanding of financial management. This leads to missed opportunities in areas of spending, saving and budgeting, investing and more complicated wealth management. It also makes it difficult for our children to be in a position to confidently manage their inheritance. The average age inheritance begins is 29 (from grandparents) and 44 (from parents). The earlier our children begin their financial literacy the more confident they are in their financial decision making.

Financial literacy can take many forms. Canadians tend towards more informal sources of knowledge and education, which typically take the form of general conversations with family though out their life. These family discussions do provide considerable value but respondents in our RBC survey noted that they found financial literacy education offered by their wealth advisor to be the most effective method of enhancing financial knowledge. We want to help your family with both these informal conversations and in providing more comprehensive financial literacy.

To assist in a successful wealth transfer, we have compiled some recommendations for you to consider:

• A comprehensive financial plan is a great starting point. Understanding your financial future and having assistance to quantify your goals allows you to be better informed to make decisions about the timing, amounts and best methods for passing down your wealth.
• Having and maintaining an up-to-date will. Estate planning changes throughout your life as your financial situation alters. Reviewing your will every 3 to 5 years will ensure that it accurately reflects your wishes and circumstances. It can be beneficial to share the contents of your will with your spouse or partner, children and other individuals who will receive an inheritance, as well as your executor.
• Know that there are a range of strategies and options to deal with even the most unique need or complex financial or family dynamic. We are here to help you in finding the right solutions for your wishes.
• Weigh your personal preferences for your wealth transfer with potential tax strategies. It is important that you work with a qualified tax professional to assist you in striking the right balance between your desires and tax efficiency.
• Take the time to discuss and identify key values in your family that were behind the decision making process of providing a legacy. This helps those receiving the inheritance by giving them a sense of direction and purpose for the funds received. We see many clients receive an inheritance and have difficulty deciding how to use the gift because they were unsure of what the giver of the funds had intended.
• Build an environment that will support a continued conversation around wealth planning. This is beneficial for both the giver and the receiving generation. This can be an emotionally challenging one, but open communication will remove any element of shock or surprise down the road when the inheritance is received and will help protect family harmony. This is especially true for your Executor as they will play an active role in the wealth transfer process and ensuring your wishes are followed.
• Recognize that what is interpreted as being fair by the giver may not be aligned with children’s or other beneficiaries’ expectations. It is important to differentiate between fair and equal as it relates to your unique situation. Some factors of potential inequality to consider include blended family situations, lifetime gifts versus inheritance, varying financial situations among children, and the difference between inheriting non-taxable assets versus taxable assets.
• Use financial literacy education as a way to support your wealth transfer. Those in the giving generation play an important role as they can educate their family members on the processes and approaches that are being used in their estate plan. It also helps to ensure that the receivers of the inheritance are confidently prepared to take on this wealth and ensure your values and legacy carry on. Part of this process should include introducing inheritors to your team of qualified advisors.

We are available to support you with any of the suggestions in this article.  Financial Literacy is one of the keys to ensuring a successful wealth transfer.  If you are looking to introduce or improve financial literacy for yourself, a spouse, a parent, children or other important family members please know that we are available to be part of the process.