4 Ways to Get Wealth Transfer Right

Passing on a legacy? Follow these steps to keep your money safe.

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Over the next few decades, Canadian baby boomers will pass down an estimated $750 billion to future generations, the largest intergenerational wealth transfer in history.  Getting that transfer right will be tricky. The money could be heavily taxed, result in family conflicts or be frittered away.

How can you ensure your wealth transfer happens properly? Here are four suggestions from Jan Musil, Manager of Tax & Estate Planning at IG Wealth Management.

Plan your legacy

“You should have an estate plan customized to meet your personal needs and objectives,” says Musil. That starts with a clearly defined will that lists who gets what assets. To divide things up, you’ll need to calculate the net value of your estate and estimate the after-tax value of your assets. Anything that’s not part of your estate, such as plans with a designated beneficiary or jointly owned assets with a right of survivorship, won’t be subject to the will.

You might know roughly how much you want to give certain family members and charitable organizations, but aren’t sure precisely which assets will work best. Consider asking them. “The easiest method is to divide the net value of your estate into portions and then allow your beneficiaries to pick and choose which assets they want to receive as part of their share,” he says.

Talk about it

“Meet with your family, especially those who will play significant roles in the settlement of your estate,” says Musil. While your will should be as clear as possible, it can’t hurt to tell everyone about your legacy-related wishes and goals before you pass away.

Sharing your plans, and sharing them early, can also help prevent family conflicts. When there’s a business or a cottage that one child is inheriting or if there are children from a previous marriage involved who may or may not be getting part of the inheritance, explaining your reasons can help everyone understand your wishes.

Meanwhile, testators who plan to pass on much of their legacy while they are still alive can field questions about the status of the remaining estate and how they expect their nest egg to be spent.

Not all your heirs will know how to handle a windfall. Some may be too young to deal with large sums, while others just aren’t good with money.

Protect your estate

Not all your heirs will know how to handle a windfall. Some may be too young to deal with large sums, while others just aren’t good with money. If this is the case, consider specifying in your will that you want a discretionary testamentary trust created. The trustee, who you appoint in your will – typically a responsible family member – would then decide when the beneficiary should receive assets from the trust.

If there’s no obvious trustee to oversee a testamentary trust, then you can instruct the executor of your estate to purchase an annuity for a beneficiary. The executor would take a lump sum from the estate to fund the beneficiary’s purchase of that investment. The periodic annuity payments would then go to the beneficiary.

“Another way to maintain control is to parcel out money while you’re still alive,” says Musil. “Not only can it be rewarding to see your children enjoy their inheritance, but you can control who gets what when.” Just be sure to not hand out so much that you can’t cover your own living expenses, which may be considerable if you live a long life.

Get expert help

Many wealthy people have blended families, beneficiaries with special needs, vacation properties, including those outside Canada, and businesses. These situations add levels of complexity to your estate plan that will require advice and direction from financial and legal professionals. But even with relatively straightforward financial situations, you’ll want experts on hand to make sure your will is airtight and that you pass on exactly what you want to your loved ones.

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