By the Sun Life team
Do you expect to receive a large inheritance? It’s possible. Are you ready to receive such a sum? Maybe not. Here’s how to prepare for it.
Does the “great transmission of heritage” mean anything to you? In 2026, Canada’s first baby boomers will turn 80. They will then initiate the transfer of no less than 1 trillion dollars (that’s 12 zeros!) to their heirs. Some speak of the most extensive transmission of heritage from one generation to another in history.
Much of this money will come from their homes, businesses and investments – Registered Retirement Savings Plans (RRSPs) or otherwise.
Are your parents from this generation? Depending on their financial situation, some of this money may come back to you.
You would like to keep them alive, that’s for sure. But it would help if you prepared for their departure. Indeed, you could inherit a considerable sum, which will have to be managed wisely. What are you going to do with it? Is it your good side or, on the contrary, your adventurous side that will take over? And why not a bit of both?
- Make a financial statement
The first thing to do is to take stock of your finances, recommends Nathalie Jacques, Sun Life Financial advisor in Saint-Jean-sur-Richelieu. “We list his ordinary and mortgage loans as well as the interest rates and monthly payments attached to them,” she advises. And we also calculate his savings. » Ask yourself these questions:
Do I have debts to repay?
Am I having trouble paying my bills?
Or am I in good financial health?
A clear picture of the situation will help to weigh inheritance decisions properly. The better off we are, the more leeway we have. - Determine your goals and projects
Another essential exercise: determining your financial objectives and short, medium and long-term projects. “Do we need a little help for our retirement, or do we want to finance the children’s studies? Do we want to treat ourselves to the trip we have always dreamed of? Or spoil his children and grandchildren? asks Nathalie Jacques.
Here is the strategy she recommends to facilitate decision-making:
We make our choices according to our priorities.
We determine how much we want to devote to each project.
The inheritance is divided accordingly.
You could also make a charitable donation in memory of your parents by choosing an organization close to your heart.
And remember: a legacy is not considered taxable income. The taxman will therefore not come to take part in it.
- Learn about inheritance tax and set up a tax strategy
Speaking of taxes, some decisions will be more tax-efficient than others. Let’s take an example. “A 45-year-old who has not reached his RRSP contribution limit could take the opportunity to inject his inheritance. She will thus maximize her tax refund, which can, in turn, be reinvested,” explains Nathalie Jacques. You can save a lot of money after a few years.
Putting the equivalent of three months’ salary in an emergency fund is also a good idea. This avoids having to borrow if you have to make a significant unexpected expense. Tax-Free Savings Accounts are a good option for depositing this money.
In these cases, the idea is to call on a tax expert (an accountant, for example). Thus, we make sure to respect the inheritance tax rules and make the most of our situation.
- Safeguard your legacy (marriage, separation, divorce)
Remember: a legacy is a property that belongs to you, even in the event of separation. It is not part of the family heritage. Let’s say you invest part of your inheritance to make significant renovations to the family home. In the event of a divorce, you will be able to recover this sum from the house’s sale price. The rest of the profits will then be shared between the ex-spouses. The best thing you can do to avoid problems is to sign an agreement when you inherit. To do this, seek the help of legal counsel. - Take life stage into account
Are you 20, 40 or 60 years old? The best strategy varies depending on your age. “In your twenties, projects are not always clearly defined, and you need flexibility. If you want easy access to your money, it is better to invest in a TFSA rather than an RRSP,” explains Nathalie Jacques.
At age 45, you will instead seek to maximize your RRSP contribution and get rid of loans with high-interest rates. And we may have to help the children pay for their post-secondary education.
It is generally in the sixties that one inherits from his parents. At this stage, we validate and we bonus.
