Tag: Baby Boomers
Wage increases are not proportionate to the astronomical rise in the cost of living. As a result, it is not all that uncommon for some to live “pay cheque to pay cheque” – especially those millennials just beginning their careers, starting a family, and hoping to buy property. Even those who have attended graduate programs (many of whom spend several years paying off the massive debt accrued by such ambitions), have double income earning families, and who hold esteemed positions in the workforce, still struggle to put aside any significant amount of money for retirement. Consequently, many young people make the unwise mistake of counting on their impending inheritance to fund their retirement.
According to Ipsos Reid survey, 35% of Canadians are relying on an inheritance to fund their futures. Although baby boomers as a generation possess great wealth, there are several reasons why that fortune might not land in the hands of millennials.
Firstly, individuals might deplete their assets while still living. Given the steady increase in life expectancy, individuals are living longer and correspondingly, their wealth must last longer. For some, this might mean living lavishly in their retirement years and travelling the world. Others who aren’t so lucky might be plagued by illness requiring extensive care. In the latter scenario, savings can be quickly consumed by these unforeseen health care expenses. For context, a private room at a long-term care home in Ontario costs on average $2,640 a month. Retirement homes, not subsidized by the government, cost approximately $3,204 a month if an individual requires assistance.
Another reason why an inheritance should not be counted until it is received is due to the volatility of the stock market. An unexpected downturn in the stock market, or a poor investing decision, could result in a retirement portfolio plummeting and thus no inheritance left to pass along.
Lastly, some parents might share the same beliefs as investing icon Warren Buffett, who infamously remarked that he would leave his children “enough money so that they would feel they could do anything, but not so much that they could do nothing.” A 2014 study by the Insured Retirement Institute confirmed that although in the past over two-thirds of baby boomers reported that they would leave their children an inheritance, this number dropped to just 46% in 2014. It appears that more parents might agree with Buffet’s philosophy than expected. As a result, it seems wise to consider your potential inheritance as a welcome bonus rather than a given.
Thanks for reading – and enjoy the rest of your day!
Suzana Popovic-Montag & Tori Joseph
It’s often referred to as the largest transfer of wealth in human history. “Baby boomers,” the post-war generation born between 1944 and 1964, are expected to transfer what Forbes has called “jaw-dropping amounts” to younger generations. Over the next 20 years, the United States alone will see a transfer of $30 trillion dollars. A 2020 Bloomberg opinion article points out that the top 1% of US households will receive 35% of all inheritances. In Canada, however, half of all Canadians expect to receive an inheritance, and 63% expect to leave one.
So how do these numbers breakdown?
- Canadians who are married, own property, and have an income of $80,000 or more are most likely to leave an inheritance.
- Only 69% of those planning to leave a legacy use a financial professional for their testamentary strategy.
- The average inheritance in Canada, according to a 2014 BMO survey, is just under $100,000.
It’s not all good news. The Office of the Superintendent of Financial Institutions (“OSFI”) is an independent agency of the Government of Canada that supervises and regulates federally regulated banks, insurers, trust and loan companies. In July of 2020, the OSFI released data showing that Canadian seniors are achieving record debt levels through reverse mortgages: $4.5 billion. An increase of $4 billion in 10 years. Reverse mortgage interest can be high. The December 2020, 5-year interest rate on a traditional mortgage was 1.69%, while the 5-year reverse mortgage rate was closer to 5%. Reverse mortgage rates compound and balloon and it’s easy to see how the collected debt could skyrocket. This is particularly so older Canadians are able to stay in their homes for longer.
So while so many younger Canadians are expecting an inheritance, and indeed that expectation is forming part of their long-term financial plans, caution and careful planning should be encouraged if that inheritance is already saddled with debt. While this blog has encouraged estate discussions between family members in the past, it’s important to make your heirs aware of any responsibilities and options for settling your reverse mortgage debt when the time comes.
Thanks for reading!
Ian Hull and Daniel Enright.
 Ian Hull also discusses the subject of the family conference in his book, Advising Families on Succession Planning – The High Price of Not Talking
Last week I blogged about the anticipated transfer of wealth to the Millennial generation. While the Millennials are expected to inherit in the next few decades, the Baby Boomers have already inherited and continue to inherit their parent’s fortunes. However, some may be quite disappointed when the waiting comes to an end.
A Maclean’s article from January discusses the expectation of inheritance popular among middle-aged Canadians. It highlights the BC case of Bull Estate v. Bull, arising from David Bull challenging his mother’s uneven inheritance amongst her children – David and Susan. After David inherited significantly less than his sister from both his father and then mother’s estates, he opposed the verification of his mother’s 2010 Will in its solemn form.
In his case, David alleged that his mother had progressive dementia in the years leading up to the execution of her Will. The trial judge found against David, that the Will was, in fact, valid and it was so proven.
One piece of evidence the trial judge referred to in his decision was a Statement of Wishes left by Mrs. Bull, which was to be opened and read by David only if he contested the Will. It explained the reasons behind the unequal testamentary bequests, highlighting a laundry list of poor behaviour by David from the past.
While the circumstances of this case, in which a testator favours one child over the other(s), is not unusual, it serves as a reminder of testamentary freedom. Professional witnesses testified to Mrs. Bull’s sharp mind and clear expression of her wishes. While testators must be of sound mind and, at times, must adhere to moral obligations upon death, they also have the freedom to dispose of their estate how they please.
Although David is said to be appealing the case, the decision of Justice Gary Weatherill stands in the meantime.
Also of note is the realization that one’s inheritance may not be as expected. The Maclean’s article further noted that a large number of Baby Boomers expect some sort of inheritance and that many overestimate how much they will inherit. In a time when Baby Boomers are carrying debt, this may be an unwelcome surprise.
Thank you for reading,
When working with your legal colleagues, it is worth keeping in mind that we all have traits and characteristics that are a function of how and when we were socialized into the profession.
In "The Multigenerational Workforce, Managing and Motivating Multiple Generations in the Legal Workplace", Sally Kane posits the following about the various generations:
1. Baby Boomers (aged 46-64) hold positions of power and authority and comprise the majority of law firm partners and senior level executives. They are loyal and work-centric. High levels of responsibility, perks, praise and challenge motivate this generation.
2. Generation X’ers (aged 32-45) hold junior partner and senior associate positions in law firms and middle-management positions in corporate legal departments. They are ambitious and hardworking but value work/life balance. Diversity, challenge, responsibility and creative input motivate this generation.
3. Generation Y’ers (aged 21-31) hold entry level associate positions in law firms and corporate legal departments. They are creative, optimistic, achievement-oriented and tech-savvy multi-taskers who seek challenge and personal growth. Immediate feedback, praise and frequent communication motivate this generation.
According to an article by Robert Half Legal, the biggest benefits to a multi-generational workplace are that it:
• Brings together people of varying experience levels;
• Allows for greater diversity of project teams; and
• Allows for mentoring opportunities.
The biggest challenges are that the different generations have:
• Different work ethics and approaches to work life balance;
• Conflicting communication styles; and
• Different points of view, which make it harder to reach consensus.
Keeping these generational differences in mind could help you to understand and to work more effectively with a colleague or even a client.
Sharon Davis – Click here for more information on Sharon Davis.
Earlier this year I blogged on the impact of baby boomers on the practice of estate lawyers. I commented in that blog about boomers inheriting the wealth of their parents, who are possibly the richest group in Canada. Below I have summarized some housekeeping tips for these affluent individuals when considering their estate plan, proffered by David Louis in Aging Boomers Up the Estate Planning Ante – Part II, published in the May 2007 edition of The Estate Planner.
- the estate freeze – don’t forget about the value accumulated in a family trust when estate planning. Otherwise, you may find yourself making elaborate instructions in your Will without considering that your personal assets are worth only a fraction of your business and investment interests.
- personally held assets – you could benefit from transfering buildings and other assets into a corporation or partnership, so that the exposure on the deemed disposition would be treated as a capital gain, rather than be fully taxable.
- Pre-Mortem Redemptions – if a corporation is generating refundable tax, it may be advantageous to systematically redeem freeze shares (as the personal tax resulting from deemed dividends on redemption would largely be tax-paid).
- family law considerations – keep in mind that if an estate freeze was effected prior to the marriage of a beneficiary, it is not clear that a distribution from the trust after the marriage would be protected from a family law claim (if the marriage ended), which could mean a fight over the post-marriage appreciation.
Natalia R. Angelini
It’s always good to end the week on a high note and once again the baby boom generation is in the news. A recent report by Decima Research says almost $1 trillion in cash and other assets will be transferred to the children of baby boomers in the years to come. The baby boomers are without a doubt the richest generation that Canada has produced to date. Even in death, the baby boomers will continue to shape our society.
In the past, the typical inheritance was likely considerably less than $100,000. However, when asked, more than 50% of the children of baby boomers expect to receive $283,000 on average. This figure represents a significant increase from the past and is indicative of the wealth that baby boomers have accumulated over the years. Half the $283,000 will be received in cash and the rest in real estate and valuables.
However, to me it is also clear that baby boomers will live longer than past generations and likely spend at a greater rate than their parents ever did as they fight the ravages of old age. Ultimately, there may not be as much to pass along as their children would like to think. The baby boomers also have an altruistic streak and may leave some of their wealth to their favourite charity.
Regardless of who gets the money, the need for proper estate planning is clear. Now is the time for boomers to get their personal affairs in order if they haven’t already. Baby boomers should let their children know now what their wishes are in order to avoid family fights in the future when their estates are being distributed. If parents are afraid that their children will react angrily if treated differently, they should nevertheless let them know and the reason why. The emotional and financial costs to the next generation is far greater than the immediate upset if a parent tells a child that he or she is being treated differently under the terms of their Will or that a charity is slated to receive the bulk of their estate. Perhaps a family conference with an outside facilitator is the way to go. Unfortunately, no matter what the baby boomers do, estate litigation is likely to increase as their children fight over their inheritance or try and prove what the “true wishes” of their parents were.
Finally, the generation which benefits from this trillion dollar transfer will have to carefully decide what to do with the windfall. Many will pay off their mortgages or other debts affording them the opportunity to accumulate their own personal fortune and pass it on to the next generation. Estate planning will always be with us… the sooner it’s done the better.
Thanks for reading and enjoy the weekend.
Justin de Vries
In less than 25 years all boomers who are still alive will be senior citizens. That’s just one of the noteworthy statistics about Canada’s population cited in the Winter 2007 issue of LawPRO’s magazine, which is largely devoted to addressing the practice implications for lawyers of older clients.*
LawPRO wisely cautions estate planning solicitors to keep the following in mind:
- Demand for legal services is on the rise – this will continue to increase as boomers inherit the wealth of their parents (being Depression babies, possibly the richest group in Canada);
- The legal arena is more complex – keeping abreast of changes made by the legislature and the courts, and being well-versed in numerous practice areas (such as family law, real estate and wills and estates) will better equip lawyers to advise the elderly and their families; and
- More litigation is predicted – the increased wealth at stake is expected to fuel litigation involving issues of capacity, guardianship and powers of attorney.
The days of the “simple will” are long gone. The sobering reality is that we are practicing in a time where the estates are bigger, clients are more sophisticated, the law is multifaceted and expectations are higher.
A word of caution to fellow lawyers – be careful and be diligent.
* For other comments on this issue I recommend you visit Bar-ex, a virtual legal resource centre.