Many gaps remain in Canadian estate plans

By Steven Lamb | July 15, 2009 | Last updated on July 15, 2009
2 min read

Canada’s boomers are well aware of what the recent market meltdown has done to their investment accounts, but they seem to think their expected inheritances from their parents will be largely unscathed.

A survey conducted for BMO Retirement Institute found that almost 30% of boomers are expecting to receive an inheritance, and 70% of those do not believe their expected inheritances will be diminished as a result of the downturn.

In fact, about a quarter expect their inheritance will make up for any gaps in their retirement finances caused by the market collapse.

But even if their parents’ finances are relatively sound, these boomers may be overlooking some of the threats to their inheritances. For starters, longer life expectancies increase the risk of the benefactor outliving their money, and it also increases the chances of a serious illness, which could rapidly deplete resources.

Also, boomers may also be overlooking taxes that are payable on death, which could cut deeply into the value of the estate if there is no financial plan in place.

“For example, an inheritance of an RRSP worth $250,000 could result in taxes owing by the estate of up to $115,000 (assuming top marginal rate of 46%),” says Tina Di Vito, director, retirement strategies with BMO Financial Group.

What the taxman leaves behind will then be further diminished by probate, executor, trustee and legal fees.

Surprisingly, the survey suggests that few of those involved will address these risks, as 64% of boomers and 52% of seniors do not plan to talk to a financial advisor about their hopes to leave an inheritance.

Further, 80% of boomers and 77% of seniors have not spoken with a financial advisor about what to do with their inheritance.

“Communication with advance planning is key and keeping your intentions a mystery until death can have negative consequences,” says Di Vito. “The lack of open conversation between generations can be a major contributing factor to poor inheritance and estate planning. It may even lead to misgivings and financial insecurity in retirement for family members.”

Less than 3% said the slowdown had wiped out their own ability to leave a legacy to their heirs.


Steven Lamb