As parents our goal is to ensure for the happiness and stability of our children, and as children our tendency is often to presume that our parents will always be there to pick us up should we fall.
The recent Manulife Financial Investment Sentiment Index which surveyed 2000 Canadians aged 25+, casts some doubt on parents goals and children’s expectations. The November 2013 survey results showed that it is “not likely that younger Canadians – already challenged by a tough job market and chronic underemployment – have a future inheritance to look forward to.” The survey found that:
43% of Canadians report they haven’t given any thought to how much cash or assets they’ll leave to their heirs.
13% per cent say they plan to leave nothing, while more than one quarter (29%) say they will leave less than $100,000, the index shows.
Only two per cent of Canadians report that they plan to leave an inheritance of $1 million or more to their offspring.
While this survey helps to provide some clarity around Canadian parent’s lack of foresight, it doesn’t elaborate on how to create or even to quantify a legacy (inheritance). While a goal of parents is to educate their children in order to help them become financially independent, most parents also have the goal of ensuring for the ongoing well being of their children. There are some steps that may help in that endeavor.
Taking Inventory
An inventory is essentially a list of all assets currently owned. This list can be as specific or as broad as you want to make it. For instance the list could indicate that dad’s hockey card collection is to be left to a specific grandchild or that the entire residue of the estate is to be left in equal portion to all of the beneficiaries of the estate. The advantage of being specific about family heirlooms is the avoidance of strife between beneficiaries who place the same value on the item. As parents we should talk to our children about what personal property they want to receive. Then prepare a detailed disposition list, perhaps even with photos (i.e., which ring did you intend to pass on?).
Setting Goals
Goal setting is always important and includes both determining how much you need in order to lead your desired lifestyle as well as how much you wish to distribute to your heirs at death. While not easy to quantify either amount your current lifestyle requirements should not be minimized and should also include amounts for the potential of long term care and disability needs. After all you earned it.
Creating and Protecting Wealth
An often overlooked aspect of estate planning is the use of life insurance as a means of protecting and creating wealth. Life insurance can provide a tax-efficient way to transfer all you’ve worked for to your family.
Life insurance proceeds can be used to preserve estate assets as it can be used as a facility to pay for funeral expenses, pay down debt and address tax liabilities. It can also be used to create wealth as funding of the policy can sometimes be less painful than years of saving and prudent investing.
Update your documents
Unfortunately many marriages end in divorce and divorced spouses often assume that upon divorce all rights of an ex-spouse are also expunged. This is however not the case as your Will is only declared invalid upon the execution of a new Will or upon marriage. As a result many ex-spouses have cheerfully received inheritances when Wills and beneficiary designations were not updated.
Travis
Comments are closed.