From Boomers To Millennials:
Updated: Feb 23
Tips for Generational Transfer of Wealth
by Hunter Chapman
Dealing with estate planning and the transfer of wealth can be challenging.
Too often, and understandably, parents and children avoid the important conversation about death and inheritance planning.
But this creates problems, two of which I’ll specifically address here (as well as potential solutions):
The first problem is that family members make assumptions, not always accurately. Granted, it’s an emotional conversation that may only create frustration, but I’ll go into more detail below about how dealing with this important business can make life much more enjoyable.
The second one, however, is financial and could potentially land your children with an estate that becomes a complicated, drawn-out and costly affair.
Here are some common scenarios and predictable outcomes involving a family-owned business transferred to the children upon the parents’ death. (Hint: Skip to Scenario 3 if you just want to read the best-case scenario and get back to the important business of ordering lunch.)
The family business will be left to the kids but parents haven’t discussed much of the details, only feeling good the business will keep running as planned. Their wills are in the home office in one of the filing cabinets. They are getting around to assigning powers of attorney.
Parents purchase a small life insurance policy knowing it will provide immediate cash to the kids. The funds will cover funeral expenses and legal fees while settling the estate. When an estate goes to probate, it could take up to two years to be resolved, so this is a smart idea.
The problem is the value of the business will increase the value of the estate and could create a large tax liability. When the Canada Revenue Agency (CRA) comes knocking, the capital gains tax bill could be substantial. Where will that money come from?
★ SCENARIO 3 ★
Parents and children work with a team of seasoned financial planners with niche expertise for anticipating and resolving personal and business inheritances, timely payouts and inevitable taxes.
WHY THIS PLAN WINS THE GOLD STARS?
The first smart move was including adult children. I know it’s uncomfortable. Few people, parents or children, want to talk about death, taxes and inheritances. However, this goes a long way in minimizing the hunt for paperwork that often creates delays and added stress after the death of a parent, when their main focus should be on themselves and their family dealing with the loss.
Secondly, they changed their investment holdings from Mutual Funds to Segregated funds, which bypass probate and legal fees. When registered investments such as a Retirement Savings Plan (RSP) or Locked-In Retirement Account (LIRA) are transferred to next generation, they are taxable as income. Family cottages and other assets are subject to capital gains tax.
Thirdly, the parents took out a Cash Value life insurance policy, which will provide immediate cash to the children. Based on the proactive work completed with their financial planner, this will also cover the inevitable CRA bill. While still enjoying life, the parents have access to the cash value within the policy, making it a valuable asset as well as an investment.
Most importantly, the parents listened when the kids said that they want to see them enjoying cruises and well-earned leisure time; the grandchildren will get many visits and Nana and Poppa don’t feel they have to scrimp or be on call for babysitting. Both parents and children can rest assured knowing the estate business has been settled.
We only get one chance to pass the torch. Making smart estate-planning decisions means doing your research through articles like this.
Make sure you’re getting a range of options from your advisor, and if you’re not, don’t be afraid to shop around.
Consider a boutique firm: they offer bespoke portfolio opportunities, access to a wide range of specialists including tax, insurance and investment specialists even succession planning and small business benefits plans, in the case of Park Place Financial.
We all know that the most important conversations are usually also the toughest. But being proactive with your estate plans will make the transfer of wealth smooth, faster and less costly -- so you can all get on with living.
Plan now, enjoy life sooner.
Park Place Financial
A native of Kingston, Ontario, Hunter has been working in the field of finance since 2019. While servicing a wide sector of clients in Eastern Ontario, from individuals, business owners, families and entrepreneurs, his passion lies with designing and enhancing plans to help people achieve their goals.
Initially drawn to the industry by seeing a need for financial education and literacy, Hunter enjoys working with his clients to understand their perspectives and help them through what can sometimes be overwhelming for those new to investment or corporate tax strategies.
A lifetime hockey player, Hunter appreciates the value being part of a team like Park Place brings. He enjoys collaborating with his colleagues across the multiple pillars of the business to best meet the needs of his clients.
When not in the office, Hunter can still be found at the rink or on the golf course.
CONTACT ME (613) 985-7329
Founded in 2012, by Mike D’Alessandro and Darrell Wade, Park Place Financial grew quickly to become one of Central and Eastern Ontario’s top wealth and estate planning firms. Its mission, to be known for excellence in helping grow and preserve the wealth accumulated by family business owners and entrepreneurs across multiple generations. In 2018, Terry Windrem Insurance Agencies joined Park Place Financial, firmly positioning the business as an industry leader in wealth and risk management.