Are you part of Generation X or Y and facing many financial challenges? Advice to facilitate the transmission of wealth between generations and plan your expenses.
The population of Quebec is ageing, and the number of heirlooms, and their value, is booming. However, there are ways to ensure a smooth transfer of wealth from one generation to the next. For savers between the ages of 35 and 50, the challenges are multiple: planning for their retirement, ensuring their children’s education, and caring for their parents who are inevitably ageing.
Are you generation X or Y? Your financial situation may require a unique look between ageing parents and children?
Here are some guidelines to facilitate the transmission of wealth between generations and plan family expenses.
4 pitfalls to avoid
Waiting for an inheritance to prepare for your retirement: Retirees enjoy a better life expectancy than before, and the costs associated with health care can eat away at part of their retirement capital. Another phenomenon, some retirees prefer to give a sum of money during their lifetime and not leave an inheritance. “What will you do if it is non-existent or less than anticipated?” asks François Bernier, director of advanced planning techniques, Sun Life Financial.
Waiting too long before compensating for the incapacity of a parent: Not everyone has a mandate in case of incapacity. However, in the absence of the latter, and if one of your parents become incapacitated, you would have to see to the opening of protective supervision, report to the tutorship council and submit information to the Curator public du Quebec. “Simplify your life: talk to your parents about the importance of these documents,” he suggests.
Sitting in the sand when it comes to estate planning: There must be some family communication in this area. “Inform your parents, and vice versa, of the presence of a will (notarized or not), the name of the liquidator chosen for your estate and any other specific measures taken for this purpose. “Do not forget to inform your loved ones of any prearranged funeral contract signed beforehand,” he adds. And, rest assured: you don’t have to reveal everything!
Delay before planning the parent’s move in residence: “Do not wait for a fortuitous event to upset your plans”, explains François Bernier. A reflection is necessary when your parents have reached a more advanced age. What do they want? What type of residence would suit them? “An accident quickly occurred. Prolonged hospitalization could force them to sell the family home in a hurry, below the estimated market value and lead to a whirlwind of emotions that are very difficult to manage,” he summarizes.
6 tips to apply
Take advantage of the financial benefits associated with the Registered Education Savings Plan (RESP). Your contributions and the generous associated government grants grow tax-free!
Consider purchasing a long-term care insurance (LTCI) contract. This protection provides a weekly or monthly financial benefit if you can no longer take care of yourself if you become dependent on another person due to an accident, illness or deterioration of your mental faculties.
Have open communication with family members, which sometimes means setting boundaries. “You could, for example, tell your son that he can stay under the family roof until he gets his baccalaureate. After which, he will have to fly on his own,” says François.
Remember: everyone has to do their homework! Don’t you have a will or mandate in case of incapacity? Do you have young children? “Correct the shot now,” he advises. If some situation about you is unclear, fix it. Does your marital status require you to obtain a divorce decree? Do not be too long! Your tax return for the past year is still not completed? Remedy each of these situations!
Find a trusted advisor and make sure you are accompanied step by step in your efforts. An analysis of your financial needs may be in order. Are you sufficiently insured? Are your life insurance coverages sufficient to maintain the current standard of living of your spouse and your young children in the event of your death? Will your estate inherit a hefty tax bill?
Make sure you have cash on hand in the event of your parents’ death. Settling an estate remains a long-term process. Sums of money will be needed to meet the deceased’s financial obligations. During their lifetime, your parents may plan to invest.
