Canada’s wealth transfer needs better planning

Marjo Johne notes that Canada’s wealth transfer, expected to exceed $1.6 trillion by 2030, will likely occur primarily after the current wealth owners have passed away. However, allowing the next generation to start drawing from their inheritance while their parents are still alive can help address one of the biggest challenges: ill-prepared recipients for the large sums of money coming their way. Cindy Radu, a family wealth transition advisor in Calgary, notes an “epidemic” of inheritors who lack both emotional preparedness and financial literacy. “Families need to find ways to shift this lens,” she says. Many affluent parents already share wealth with their grown-up children through gifts such as home down payments or seed funding for businesses. Some go further, giving their children part of their assets on an ongoing basis to help them get used to the responsibilities that come with wealth. For parents, this is also a way to observe how their adult children handle significant amounts of money, enabling adjustments to estate plans if needed. For instance, a child who spends recklessly might ultimately receive their inheritance in trust. Thuy Lam, a money coach and certified financial planner at Objective Financial Partners Inc. in Markham, Ontario, emphasizes open conversations about money to reduce the risk of children “going wild” with their inheritance. “They don’t want to mismanage the money,” she says, noting that building financial responsibility is akin to building a muscle. Nancy Marshall, managing consultant and head of family office solutions at Toronto-based Prime Quadrant Corp., discusses how one family allowed their adult children to control a specific pool of capital and keep its generated income, thus learning about income generation and taxation. She adds, “It’s best to start with a modest amount of capital. ” Jason Heath, a certified financial planner and managing director at Objective Financial Partners, suggests giving money in tranches throughout the year instead of providing ongoing access to the family bank.

Canada’s impending wealth transfer challenges

This approach allows recipients to learn decision-making with large sums while allowing parents to provide guidance. “My advice would always be: give a portion of what you can afford, re-evaluate in a few years, and see where they’re at,” he says. Heath also advises on tax-efficient methods of giving money, such as directing funds into kids’ tax-free savings accounts or registered retirement savings plans. Communication remains crucial in these intergenerational transfers. A survey by Ipsos for Sun Life Financial Inc. found that millennial inheritors expected to receive an average of $309,000 from their parents. In contrast, the parents planned to pass on an average of $940,000. Conversations about family values and wealth history can help the next generation understand their parents’ decisions and prevent conflict. “We worked with one family that was adamant about how certain components of the finances were structured. The kids were aware but didn’t understand what drove those decisions,” Marshall says. She cites an example where the children didn’t know that an uncle had lost millions due to poor structuring of wealth. Heath posits that the opening of the family bank is an ideal time to introduce children to their parents’ professional services team, including their financial advisor, portfolio manager, accountant, and lawyer. An Environics survey revealed that more than 80% of affluent Canadians haven’t introduced their children to their financial advisors or included them in planning meetings. Advisors can proactively reach out to the next generation to build relationships. It’s beneficial—for advisors, their clients, and the next generation—to develop family relationships early and encourage clients to bring their adult children into discussions,” Heath emphasizes. By fostering financial literacy and responsibility early, wealth owners can ensure a smoother transition for the next generation.