The greatest generational wealth transfer in Canadian history is happening right now. Baby Boomers — those born between 1946 and 1964 — experienced the golden era of economic growth and prosperity, benefiting from a 40-year rally in stock and housing prices. Now, as they enter the retirement phase of their lives, many are faced with big questions about their next steps and how to effectively distribute their wealth to their children, grandchildren, and beyond.  

Economists estimate that between now and 2026, boomers are set to transfer a staggering $1 trillion dollars of personal wealth to their children. The enormous transfer of wealth will have far-reaching impacts on the Canadian economy and is poised to create a wave of changes for GenXers and millennials who lived through multiple recessions, sky-rocketing housing prices, and affordability challenges in all areas of living.  

While inheritances are filled with potential benefits, the influx wealth could be a shock to those who are not prepared for the windfall they are about to receive. And, of course, not everyone will have millions to bequeath to their heirs, but anyone who wants to build a family legacy will need to start somewhere.  

Wealth building and preservation

Generational wealth is created when families understand how to build wealth, sustain their wealth, and pass on their wealth strategies; it is a practice of family governance that involves investing, saving, and asset protection. Every family, looking at the next generation, hopes to provide the resources and advantages that allow them to achieve their dreams and aspirations. Yet many families struggle to translate this vision into a comprehensive plan, let alone sustain it for generations to come.   

One of the most important things parents can do to set up their beneficiaries is to make sure the next generation is equipped and comfortable in handling the wealth they are about to inherit.  

Create a family legacy plan

A fundamental first step in the wealth transfer process is setting well-defined financial goals based on the various assets one owns. Financial advisors will be invaluable in assisting this part, as they can help you articulate your financial objectives, align them with your values, and create a plan to achieve them. Examples of inheritances include: 

• Financial Assets: Cash and investments, including stocks, bonds, and other investment vehicles (RRSP, RESP, TFSA). 
• Real Estate: Family homes, real estate holdings, and other properties. 
• Family-owned enterprises: Small to medium sized businesses.   
• Personal Contents: Collectables, jewelry, art, etc.  
• Knowledge: Passing down financial knowledge, expertise, and life lessons can be as valuable as any financial asset.

Will and estate planning

The ease in which each form of wealth is handed over to the next generation will depend largely on estate planning. In Canada, assets are typically distributed in accordance with a will or, in the absence of one, through the Provincial estate succession laws. Without a valid will, there’s a risk that your hard-earned assets and property could default to unintended beneficiaries, including the government. 

Tina Cheung, Wealth Advisor at Vancity, summarizes the importance of wills, saying, “Everyone should consider having a will, even if you don’t have dependents. The will is a guiding document to administer your estate — it gives you the power of choice and puts you in the driver’s seat.”  

Tax efficiency

And then there are taxes. Even after death, there are taxes. In fact, taxes can significantly reduce the value of inheritances, so it’s key to develop strategic plans to minimize the tax burdens on the next generation.  

One effective strategy is to leverage tax-advantaged accounts like a Tax-Free Savings Account (TFSA), which provide unique benefits and exemptions. Additionally, some parents opt to gift cash to their adult children or grandchildren during their lifetime, as these cash gifts are not subject to tax implications. 

Whether it involves selecting the right investment vehicles or structuring your estate plan with tax efficiency in mind, consulting with a wealth protection specialist can provide invaluable insights and tools to preserve a lifetime of hard-earned wealth. 

“Everyone should consider having a will, even if you don’t have dependents. The will is a guiding document to administer your estate — it gives you the power of choice and puts you in the driver’s seat.”  – Tina Cheung, Wealth Advisor at Vancity

Family communication is crucial

It’s reported that 70% of wealth transfers result in disputes or loss of assets, and 85% of these fail because of a lack of communication and not properly preparing heirs to manage the inheritance. This underscores the critical role family communication in plays in the wealth transfer process.  

An effective way to initiate the wealth-transfer dialogue is by involving a financial advisor. Parents can invite their children, regardless of their children’s age, to meet with their financial advisor. It allows the younger generation to gain insights into the family’s financial strategies and enables the financial advisor to address any questions or concerns. 

Vancity members have access to a whole array of specialists including financial and estate planners, wealth advisors, and wealth protection specialists who help ensure you are well-prepared to make informed financial decisions about your family’s future.  

To learn more, watch Vancity’s free webinar series Legacy Matters: Transferring Wealth and Assets.

The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds and other securities.