Factors impacting size of your inheritance

An inheritance can be impacted by:

·       Life expectancy and retirement age

·       Unanticipated events and health care expenses

·       Challenging markets, interest rates and inflation

·       Taxes on death

·       Family size

Life expectancy and retirement age

Thanks to healthier lifestyles and medical advances, we are living longer, almost ten years longer than the average life expectancy five decades ago. This is good news – in terms of retirement dollars, those additional years demand a significant amount of retirement savings – especially if one considers the extra health care needs that typically go hand-in-hand with ageing.

Unanticipated events and health care expenses

Longer lives mean an increased risk of needing costly medical care or daily living assistance within one’s lifetime. While some government funding kicks in for all Canadians, there are limits, and coverage varies across provinces. In 2006, 45% of mature Canadians (50 years and older) reported spending more money on living and medical expenses than they had planned. This is not unexpected, as the charges for basic accommodation in publicly supported long-term care institutions ranged from $540 to $3,960 a month per person. Hence, Canadians can anticipate paying more out of their own pockets to cover medical essentials and long-term care services in the future.

Challenging markets, interest rates and inflation

Seniors, who typically invest more in fixed-income products such as GICs and bonds, are forced to balance a low rate of return with a higher rate of taxation, as compared to capital gains and Canadian dividend income. As a result, many may be forced to use up more of their assets than originally anticipated simply trying to keep up with rising inflation costs, leaving little behind for their successors. Meanwhile, Boomers on the brink of retirement may be faced with smaller nest eggs with which to fund their retirement lifestyles if their portfolio value declined with the stock market. The potential result is an inheritance that could shrink from one generation to another.

Taxes on death

Although there are no estate taxes in Canada, a significant proportion of an inheritance could be consumed by probate fees and capital gains taxes due upon death Not only can taxes and probate fees erode the value of an estate, they could force the sale of assets. For instance, a family cottage or investments may have to be sold as heirs try to come up with the funds to pay the taxes, probate, executor, trustee and legal fees. Being forced to sell assets to cover fees could negatively impact the net value of the estate.

Example: How taxes could reduce an inheritance

Margaret is a widowed mother of three adult children who live in Ontario and has significant assets registered in her name only. Her assets include RRSPs worth $250,000 and investments valued at $100,000 (for which she paid $50,000). Upon her death, the total estate value will be $350,000. However, this is not the amount that will be distributed to her children, because there will be taxes charged on her investments. The estate will need to pay approximately $115,000 in taxes on her RRSPs and $11,500 on her investments (assuming a top marginal rate of 46%15). Assuming she has no other outstanding debts to be settled by her estate, the net value of her estate will be $223,500 which may be further reduced by probate, executor, trustee and legal fees.

Family size – Many ways to split the pie

Boomers represent a large percentage of the world’s population. In Canada, Boomers account for approximately 30% of our population. It stands to reason that any legacy that the Boomers’ parents leave behind is likely to be split between multiple siblings.

But the demand for a slice of the pie does not end there. Children are not the only ones to inherit this wealth. In the recent BMO Retirement Institute Inheritance survey, both seniors and Boomers indicated that they are planning on leaving an inheritance to someone other than their spouse/ partner or child. Moreover, seniors are more likely than Boomers to plan on leaving an inheritance to a grandchild (37% vs. 18% respectively) or to a charitable organization (28% vs. 18% respectively). Ultimately, this may reduce the size of the inheritance that many expect.

Passing it on: What will future inheritances look like?

I was talking with one of the people who raise funds for a local charity that I support and we talked about the idea of legacy giving, and she said that many seniors are thinking about this idea, but are not ready to move forward on it yet. This is a shift that I think is encouraging. Back in the 90’s I used to see bumper stickers that said, “I am spending my kids’ inheritance.” I thought it was a great plan, seniors worked hard and so they should enjoy the opportunities life gives when they retire. I am still of that opinion, but I do hope that I will leave my children a small amount, but the idea of leaving a legacy to a charity is also appealing.

When my mom died, she left my brothers and me a small amount of money. I used mine to take my family on a trip to Hawaii and it was money well spent, as we still talk about that trip.

However, many of my generation still expect that they will get some money from their parents, and our children still think they may get some money from us (Boomers). The reality of this may be a bit different. The Bank of Montreal did a study of this issue and has some interesting results.

Over the last decade, many studies have attempted to quantify the magnitude of the wealth that will transfer between generations. In Canada, it has been estimated that Boomers stand to inherit approximately $1 trillion over the next twenty years. In the U.S., the numbers were even higher, with some estimates around the US$41 trillion range

While the size of the pie is up for debate and continues to be influenced by market conditions and other factors, there is certainly an expectation that an unprecedented shift in wealth from one generation to the next will take place over the next few decades as seniors pass on. According to a recent BMO Retirement Institute survey, 30% of Canadian Boomers polled are expecting to receive an inheritance from someone in their immediate or extended family.

There are risks to incorporating an expected inheritance into a retirement plan without considering all possible scenarios (e.g., a smaller inheritance than expected). In 2006, a study showed that about 1.5 million Canadians are relying on their inheritance as the primary source of capital to fund their retirement. The report stated that, on average, Canadians expected to receive a total of $150,600 in cash or cash equivalents, and $151,200 in non-cash inheritance. But in reality, inheritance sums received were significantly less – the average inheritance received that year was $56,000. Don’t count your chickens before they hatch, is the moral here. If you as a Boomer are relying on your parents, or other relatives to fund your retirement, you should start to think differently.

Obviously, there are uncertainties involved in the transfer of wealth, such as timing and the actual monetary value of the inheritance. Some of these uncertainties can be solved through discussion between family members. However, particularly with the older generation, discussions of their death and the transfer of their estate, including writing a Will may be considered “taboo.” The lack of candid conversation between generations appears to be a major contributing factor to poor retirement and estate planning. 

Moreover, the problem with this lack of dialogue is that it often leads to misgivings and financial insecurity in retirement for Boomers and seniors. For example, an increasing number of individuals are planning to bequest a portion of their wealth to charities as part of their legacy, leaving their children empty-handed or with a smaller inheritance than expected which helps those in need, but may harm family who is depending on this money to fund retirement.

A time for every purpose

When I was growing up my mom had the following hung up on the wall in the kitchen and I read it every morning as I sat down for breakfast.

To everything there is a season, A time for every purpose under heaven:
A time to be born, And a time to die; A time to plant, And a time to pluck what is planted;
A time to kill, And a time to heal; A time to break down, And a time to build up;
A time to weep, And a time to laugh; A time to mourn, And a time to dance;
A time to cast away stones, And a time to gather stones; A time to embrace, And a time to refrain from embracing.


This poem comes from the book of Ecclesiastes in the Bible. The book of Ecclesiastes, which for those who don't know, are the musings of a King of Jerusalem as he relates his experiences and draws lessons from them, often self-critical. 

My mom like many others believed that there was a purpose in life and that these few words summarized the seasons and the up's and downs of life that we all face.

We all face times to weep and times to mourn. These events are part of human existence but for every setback, disappointment and heartbreak perhaps you should ask yourself, "What does this create the opportunity for?" As the poem above states, there is also a time to dance, a time to embrace and a time to build up, which means for every disappointment, and heartache there is also an opportunity.

And this is the gift of life, everything has a reason and opportunity is always just around the corner.

Help for Caregivers using Technology

One of the biggest concerns, I suspect of caregivers who are looking after chronically ill loved ones are the sense of isolation and feeling alone. This is not true, a story written by Megan-Thielking in an online post on STAT points out that there are many support groups on Facebook out there. If you do a search on Facebook for "dementia caregivers support group" you will be amazed at the number of groups that come up. Not only do groups come up, but videos and links to other resources. This is a screenshot of the first few groups found when using this search.

The interesting point is that if you are a caregiver and feel isolated and alone, there is a support group with people who can help you. Technology can connect you with new friends and support that you did not know was available. Facebook is one place to start, but if you do other online searches for example select then right-click on the following text dementia caregivers support group and select search google, within a second you will have over ten million hits. Help can be only a click away, please use it

There is always someone online when you need to connect with a person, and often, there’s someone who is familiar with the very same problems you’ve come to ask about. You don’t have to drive to a support group or find someone to care for your loved one while you’re there. They’re a place to ask for advice, to vent, to be brutally honest. And because most groups are private, they’re a place to share things with strangers that you’d never want your own family to know, things a caregiver might be embarrassed or ashamed to ask anyone but another caregiver.

The groups are a particularly powerful platform for dementia caregivers, who are tasked with a singularly cruel and lonely job. They shoulder hefty responsibilities like all kinds of caregivers do — coordinating medical care, helping with bathing and eating, and figuring out finances. But they do so while watching their loved ones — often, a parent or partner — lose their memories and their sense of self.