Roughly $1-trillion will be passed down in Canada over the next few years in what has been dubbed the great wealth transfer, but a new survey suggests disappointment is coming for some recipients who say an inheritance is an imperative part of their own retirement plan.
The survey, conducted on behalf of Vanguard Investments Canada, found roughly 34 per cent of young Canadians aged 18 to 34 consider an inheritance to be a crucial part of meeting their financial goals, while 61 per cent said an inheritance will at least be important for their future.
Meanwhile, 31 per cent of older Canadians will either be unable or are unsure of their ability to leave money behind for their kids. That’s despite 49 per cent of parents acknowledging that an inheritance will be a vital part of their children’s financial future.
Mario Cianfarani, head of distribution at Vanguard Investments Canada, says he increasingly hears from advisers that Canadian parents who are struggling to leave behind a nest egg for their families as inflation and longer life expectancies eat into their savings. The survey reveals a disconnect between the expectations adult kids have for an inheritance and their parents’ ability to provide one, he said.
“Parents are wanting to leave a legacy to their kids and wanting to give them a leg up, but they’re also acknowledging that they may need the money, they may need equity in their home to fund health care costs or food costs,” said Mr. Cianfarani, who said inflation has been a particular challenge for retirees in recent years.
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“I think it is very much something that is a little bit more heightened since the [COVID-19] pandemic. We’re hearing a lot more of those types of conversations with advisers.”
Jason Heath, an advice-only financial planner and managing director of Objective Financial Partners Inc. in Markham, Ont., says that when he brings up the topic of inheritance with his clients, the vast majority only have a vague idea of what amount of money they expect.
He says it can be important to have those conversations even if they’re awkward or difficult to start, especially for young people who are trying to better understand their financial situation.
However, he also tries to temper people’s expectations because inheritances can be smaller than expected, and they could take decades longer to materialize because it’s hard to know how long a parent will live or how much of their wealth they’ll spend.
“Inheritance is always a bit of a moving target and wild card, and it makes it very difficult for people to plan,” said Mr. Heath.
“A lot of times when we’re working with clients that have some sense of an inheritance, I’ll push them on it and lower the amount they expect. Sometimes we’ll even do stress testing on a client’s retirement plan to determine if this inheritance never comes, are you going to be okay on your own?”
Mr. Heath says he has some clients who not only will be left behind by the great wealth transfer, but will also have to aid parents who are unable to cover their own cost of living.
Mr. Cianfarani said it’s imperative for families to set expectations around inheritances so that people can make informed decisions about their finances.
Filling the gap of a large inheritance can seem impossible, but Mr. Cianfarani said speaking to a financial adviser can be a soothing experience in its own: An earlier Vanguard survey found that 40 per cent of respondents who have a financial plan created by an adviser expressed a high level of optimism about their financial future, compared with just 22 per cent of those without a formal plan.
