Many baby boomers are ready to retire with the largest transfer of wealth ever between generations. How can the older generation transfer their hard-earned wealth effectively while the fortunate recipients make arrangements to receive their inheritances?
Chartered Accountant Sharon Brown, Partner, Robinson & Company LLP in Guelph has these tips to make the processes efficient and successful – for both generations.
Planning for an Inheritance
Make your will as flexible as possible.
Consult with a CA tax practitioner as well as a lawyer, to ensure that your will maximizes tax-planning opportunities.
Provide for a specific testamentary trust if the size of the estate warrants it and then allow an early distribution of capital by the Executor or even an eventual collapse of the trust.
If the estate is held in a testamentary trust, it can significantly benefit the beneficiaries, who will still have the same access to the income and assets, but pay less tax. Instead of allocating all of the income earned in the estate to the beneficiaries (who will have to add that income to their current income), the executors can elect to have some or all of the income taxed in the trust and then distribute the after-tax income to the beneficiaries. This can result in significantly lower taxes for the heirs compared to them receiving the inheritance directly.
Receiving an Inheritance
Develop your own plan first – money can disappear quickly, so decide what you want to do with your inheritance – including investing it and keeping it intact for your children, paying off your mortgage, topping up your RRSP, paying off debts, or donating to charity.
Consult an investment adviser:
In choosing an adviser, interview two or three professionals, choosing the one with whom you feel most comfortable. As much as it’s about the money, it is also about having a trusting relationship. Make sure your adviser understands your objectives and will develop a plan suited to your needs.
Assuming this is an inheritance from your parents, you may decide to use their financial adviser. You can also obtain a reference from other family members, friends or your Chartered Accountant.
Prepare a will to recognize these new assets, or review your current will to ensure that it is still appropriate.
Prepare a Power of Attorney. If you already have one, review it to ensure that the designated person is willing and capable of handling your affairs and inheritance.
While there are no tax consequences to you on the amount of the inheritance, consult a CA if you have a substantial inheritance, and have your tax return prepared by a tax professional. Your tax return will be more complicated, particularly if a large investment portfolio is involved.
Brown concludes, “Each situation is unique, so consult a team of advisers, including a CA, lawyer and investment professional, to ensure your planning benefits from the different areas of expertise.”
Brought to you by The Institute of Chartered Accountants of Ontario
The Institute of Chartered Accountants of Ontario is the qualifying and regulatory body of Ontario’s 33,000 Chartered Accountants and 5,000 CA students. Since 1879, the Institute has protected the public interest through the CA profession’s high standards of qualification and the enforcement of its rules of professional conduct. The Institute works in partnership with the other provincial Institutes of Chartered Accountants and the Canadian Institute of Chartered Accountants to provide national standards and programs that are used as examples around the world. </em>
