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
The topic of home ownership, and, particularly, the ability of young adults to buy their first home is a trending topic lately. According to a Globe and Mail article on whether millennials are being pushed “into a financial abyss of home ownership”, Manulife Bank has conducted a survey which revealed that 45% of millennial home buyers received a gift of money or loan from family, and that one-third of these lucky youngsters received more than $25,000.00.
Regardless of whether prospective first time home buyers are wasting money on delicious, but expensive, avocado toast as Tim Gurner may have controversially implied, home buyers with mortgages should give consideration to how they would want the mortgages on their properties to be satisfied upon their death.
Pursuant to section 32 of the Succession Law Reform Act, a mortgage on an estate property shall be proportionately satisfied through the interest of the beneficiaries of that property, if the deceased has not, by will, deed, or other document, signified a contrary or other intention. For each beneficiary of a property, “every part of the interest, according to its value, bears a proportionate part of the mortgage debt on the whole interest”. The Act is also clear that a general direction for the payment of all debts from the residue of the Estate does not suffice to rebut the application of section 32 unless “he or she further signifies that intention by words expressly or by necessary implication referring to all or some part of the mortgage debt”.
Regardless of the foregoing, nothing in section 32 of the Act shall affect the mortgagee’s right “to obtain payment or satisfaction either out of the other assets of the deceased or otherwise”.
Just for fun, here is a link to a CNBC article on some statistics related to millennials, their spending habits, and the average price of a single avocado.
Thanks for reading!
Isn’t estate planning just for old, married, and rich people? This is a question that we face all of the time. The simple answer is – no.
Proper estate planning helps not only the old, but the young as well.
A recent US survey amongst 23 to 35 and 35 to 44 year olds indicates that, respectively, 80% and 67% of these groups do not have a Will. Closer to home, the percentages are quite similar. A Canadian survey found that 77.2% of 25 to 34 year olds and 67.9% of 35 to 44 year olds do not have a Will. A prior Hull & Hull blog highlights those Canadians that had a Will that needed updating.
Given that the leading cause of death amongst millennials is accidental and unintentional injuries, estate planning should not wait.
A recent article on Forbes highlights estate planning tips that every millennial should consider regardless of whether they are married, have dependants, or are still paying off student loans. Of course, professional advice should always be sought.
- Add beneficiaries to your accounts – designating beneficiaries on bank accounts and investments allows for the transfer of the asset to your intended recipient upon your passing. Including the recipient as a beneficiary, as opposed to a ‘joint owner’, ensures that they do not have access to the account (and funds), while alive leading to concerns of misappropriation. The Forbes author additionally suggests that these designations should be checked at least once a year in the event they need to be updated.
- Get a basic Will – nothing overly detailed or expensive is required. Carefully thinking through the choice of estate trustee(s) and the division of assets will not only ensure your wishes are followed, but will avoid the headache of proceeding with the administration of an intestate estate. The Forbes author additionally suggests having a secured list of your digital assets, along with the username and password.
- Consider life insurance to cover student loans – certain loans are not discharged upon death. Insurance helps alleviate the concern that a co-signatory, usually a parent, is not left with the burden of paying off the remainder of the loan.
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.