Don’t squander your legacy

The essential guide to inheritance planning

Neglecting to plan your inheritance is a bit like leaving your garden unattended for a few seasons. What starts as a minor oversight can quickly turn into a jungle of complications. Shockingly, two-thirds of Canadians haven’t put their estate plans in writing, according to a 2024 survey by IG Wealth Management, despite an expected $1 trillion in assets set to be transferred via inheritances in the next decade.

When a significant sum of money lands in the lap of someone who didn’t earn it during their lifetime, it can lead to a host of challenges. Financial mismanagement, family discord and even legal battles can arise. Inheritors might feel overwhelmed, unsure of how to handle their sudden wealth, which leads to anxiety and poor financial decisions. As the saying goes, “Easy come, easy go.”

The pitfalls of inadequate inheritance planning

Without proper planning, wealth transfer can lead to several challenges for your heirs:

1. Risk of fraud and exploitation: Inexperienced heirs can become targets for financial scams and exploitation.​​ Falling victim to such schemes can lead to significant financial losses, jeopardizing the inheritance intended to support their future.
2. Family disputes: Ambiguous inheritance plans can cause significant conflicts among family members. Clear, well-documented plans are crucial in preventing misunderstandings and ensuring that wealth is distributed according to the benefactor’s wishes. 
3. Tax Implications: Unplanned wealth transfers can incur substantial tax burdens, reducing the overall inheritance value. Strategic planning can help mitigate these taxes, preserving more wealth for the beneficiaries. Proper estate planning can save heirs from unexpected tax liabilities and ensure a smoother transfer process​.

Key considerations for transferring wealth 

To avoid these pitfalls and ensure a smooth wealth transfer, parents and grandparents should consider the following strategies:

1. Clear communication: Talk openly with your children and grandchildren about your plans. Surprise inheritances can feel like a windfall, but they can also bring confusion and stress. A candid conversation ahead of time can prepare them mentally and emotionally for the responsibilities that come with managing wealth.
2. Structured distribution: Rather than a lump-sum transfer, consider staggered distributions or trust funds. This method can help reduce the risk of financial mismanagement. Setting up a trust can ensure your heirs receive funds in a controlled manner, reducing the temptation to splurge.
3. Education and financial literacy: Equip your heirs with the knowledge they need to manage their inheritance wisely. Financial literacy programs or meetings with a financial advisor can be invaluable. Well-informed individuals are more likely to make prudent financial decisions.​

Supporting the next generation 

When wealth is transferred, so too is the responsibility of managing it. Providing support for your heirs can make all the difference. Here are a few ideas to help:

• Comprehensive guidance: Schedule regular meetings with a financial advisor to review the inheritance’s management and address any concerns or questions. This helps ensure that heirs stay on track with their financial goals​.
• Recognize inheritance grief: “Inheritance grief” refers to the emotional and psychological challenges that heirs may experience when they receive a significant inheritance. It can manifest in various ways, including mourning the loss of the loved one and the changes that come with inheriting wealth. Emotional support, financial education and careful estate planning can help heirs navigate their feelings and responsibilities effectively.​​
• Communicate the family financial plan: I know that I mentioned communication already, but I cannot overemphasize the importance of this! Develop a family financial strategy that includes goals for wealth management, charitable giving and future investments. This plan can serve as a road map for heirs to follow, promoting responsible financial behaviour and long-term planning.​ 

Don’t leave it too late

Inheritance planning might not be the most exciting topic, but it’s essential to ensure your legacy is preserved and appreciated by future generations. By addressing the challenges head-on and providing the necessary support while you are still capable of doing so, you can help your heirs navigate their inheritance with confidence and wisdom.

Next time you’re tempted to delay those estate planning talks, remember this: a little planning now can prevent a whole lot of heartache later. And who knows? It might just be the most rewarding conversation you’ll ever have.

More financial planning advice:

• What happens to an RESP for grandchildren when you die?
• Tax implications of adding a child’s name to your rental property
• Why a reverse mortgage should be a last resort for most retirees
• A parents’ guide to home down payment gifts and loans

About Debbie Stanley, TEP, MTI

Debbie Stanley is an estate and trust professional, and CEO of the estate firm ETP Canada. She is a writer, speaker and regularly featured guest on Zoomer Radio.

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