#150 The Other Side of Estate Planning

A couple years ago my parents were talking to us about their estate. I told them that I would be very proud if they donated anything they didn’t spend to the SPCA. And I meant it. Just think of the poor little kitties.

My Dad looked at me very sternly and said “I didn’t work this hard my whole life so that you’d have nothing”.

Maybe that comes across a little more direct than it was meant, but that’s how the memory replays for me. And it’s also the doorway to a very serious disconnect. Most people wouldn’t know what to do with an inheritance.

Not to generalize myself or them, but my parents are part of that odd little second spike of the Baby Boomer generation, and my sisters and I are considered millennials. One of the more telling estate quotes for Baby Boomers is that “the only inheritance they’ve ever receive is a hard work ethic”. Often the children of immigrants, war veterans, or both, baby boomers grew up in a world that was fighting to rebuild.

And then there’s Camp Millennial. Generalizations include socialist attitudes, a belief in higher education, a love of culture and travel, and an intense fear of debt. I had a conversation with a millennial client last week, and we teased about living in vans and opening up animal rescue shelters. His niche would be abused chickens. Mine would be called MEOWS – Meagan’s Evicted and Orphaned Wildlife Sanctuary.

The differing perspectives between generations can be one of the hardest parts about receiving an inheritance. Aside from dealing with the emotions of losing someone you love, there are layers of guilt, increased responsibility, and identity loss. In financial planning, clients take comfort from knowing they’re on the right path. Sudden additional wealth can fortify the path, or it can just as easily derail it. How much sacrifice does this gift represent? How can you honor and protect it? Who will you become now that you have it?

Answering these questions is going to be a challenge for a lot of people, as pundits are estimating over a Trillion dollars will pass hands in the next few decades. This will happen both through living inheritances, and through the processing of estates. And while the average inheritance in Canada is only $56,000, many are significantly more.

A well-know statistic is that the majority of lottery winners end up in a worse financial position within a few years than they were before they won the lottery, with many damaged relationships along the way. The emotional burden of the lottery windfall is quite a bit different, but the proceeds are just as easily spent. If you are expecting to or in the process of receiving an inheritance, overcoming the emotional hurdles can help you preserve your relationships, your identity, and your future. Here are some of the steps you can take to make it a little bit easier.

When you receive an inheritance, the first thing you need to do is to take a deep breath and just stare at it. You’re waiting for two things. The first is called a Clearance Certificate. It’s the document that confirms all of the estate’s taxes are paid. Depending on what the inheritance was before it was received, you could be held jointly and severely liable for any unpaid taxes, so until you know that the tax bill has been cleared, don’t make any major decisions.

The second thing you’re waiting for is normality. When you can look at the inheritance and talk about it without a cascade of emotions forming a whirlpool in the bottom of your stomach, then you’re regaining your frame of mind and are ready to proceed.

The next thing you’ll want to do is understand that inheritances are protected from matrimonial property so long as the inheritance is kept separate and apart and is traceable back to the original estate. If the sum is significant, consider foregoing paying off that debt, or renovating that home, or contributing to a spousal RRSP (ESPECIALLY if you are common-law). If there is a chance that you will divorce before you die, effort should be made to preserve the gift in your name only.

Once you have the basic structure of ownership clarified, take the time to make yourself okay. On an immediate scale, this could mean paying off retail debts, creating an emergency fund, and making sure that your own insurance is adequate and up to date. On a long-term scale this could mean updating your financial plan, prepaying your own funeral, or pursuing additional postsecondary education.

Next thing, talk about the inheritance with your siblings and with your children. You don’t have to let them know how much you received, but you should let them know what’s in your heart, and where your relationship with them stands. Money can do a lot of things, and one of the things it’s the very best at is creating tension in relationships. Speak about what you believe the bequestor would have wanted you to do with the funds, what you’ve done so far, and what your intentions are going forward. Give them the opportunity to agree or disagree, but don’t let them walk you into a decision.

And finally, take the opportunity to cleanse your own estate plan. Receiving an inheritance can be emotionally loaded, but there are lots of things you can do to make it easier for your own heirs.

To start out with, build in written formal agreements for any assets you share with anyone who’s not your spouse (and even sometimes if it is your spouse). It’s quite common to inherit a cabin, rental properties, shares in a company, or farmland in joint name with your siblings or other family members. A Unanimous Shareholders Agreement will spell out how to deal with the asset if the balance of the relationship changes (death, divorce, disease, etc).

Next, consider providing a living inheritance. Whenever we ask clients what their best investment experience has been, almost without exception the answer is paying for the kids’ education. Even if the math of it doesn’t work out great, helping your kids or grandkids get a firm start to adulthood can turn out to be your most rewarding investment. And it helps them to get a little practice in managing their own finances too. Of course, this is assuming that you’ve already updated your Financial Plan, and that you are unlikely to spend anything you’re considering gifting.

And finally, actually take the time to sit down and write family love letters to go with your Will. It’s been a while since I’ve seen the movie Raising Helen, but if you’ve seen it, you’ll recall that the sister who passes away has written letters to her two sisters to explain her decision in making Helen the guardian of her kids. The show was light-hearted, but writing love letters is absolutely real. Let your family know that you love them, that you’re proud of them, and what you’re intentions are for anything you’re gifting to them (r alternatively, why you’re disinheriting them). Writing down your beliefs and your intentions will go a long way to ensure that your estate is handled the way you want it to be, and that your beneficiaries are emotionally prepared to receive your gifts.

Working through the emotions of an inheritance will allow you to know that the gift was honored, and that you’re okay, at least in part, because someone cared about you. If you have any questions on how to manage an inheritance, or for more information on establishing your own estate plan, speak with a Certified Financial Planner today.

Written by Meagan S. Balaneski, CFP, R.F.P.

Meagan S. Balaneski, CFP, R.F.P CERTIFIED FINANCIAL PLANNER® Advantage Insurance & Investment Advisors Investment Funds Representative Manulife Securities Investment Services Inc.

The opinions expressed are those of Meagan S. Balaneski and may not necessarily reflect the views of Manulife Securities Investment Services Inc.

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