Can Canadians still afford to pass on an inheritance?

CWB research finds that while half of Canadians say their heirs will benefit, it varies widely by province

Can Canadians still afford to pass on an inheritance?
Steve Randall

Leaving assets to help the next generation is often cited as a key financial goal, but with the cost of living squeezing income and potentially depleting future funds, can Canadians afford to?

Nationwide, it’s an almost a 50/50 chance that respondents to a new Canadian Western Bank poll with Angus Reid can leave an inheritance, but when narrowed down further there are winners and losers.

Those living in Quebec are most likely to say they should have the resources to pass on a financial legacy to their heirs (60%), while those in Ontario hit the national average (52%). But for those in Manitoba, Saskatchewan and British Columbia, there’s a less-than-average likelihood of an inheritance.

While passing on wealth to the next generation is often considered along with retirement planning, the poll highlights how inheritance planning should be taking place as soon as possible to maximize the legacy that is left for heirs.

While 72% of over 55s are confident that they have plans in place to benefit their children, this falls to just 44% of those aged 35-54. Those in the 18-34 age range may not have thought too hard about leaving something to their heirs but a third are already confident that it’s unlikely.

Nearly two-thirds of poll participants with household incomes over $100,000 said their parents or guardians have spoken to them about their inheritance. For those making less than $50,000, less than half have done so.

Living inheritance

A growing trend is a living inheritance where assets are gifted while the contributor is still alive.

This enables both the inheritor and the contributor to enjoy the gift and ensure that wealth and investment management is undertaken.

Examples of living inheritances include a lump sum, monthly or annual payments, school payments, buying or transferring ownership of a home, taking a trip together as a family.

Top tips

CWB’s wealth advisors have several important considerations for inheritance planning:

  • Understand how much they have available to leave for beneficiaries, retirement, and even charity. Not only will charitable gifts create a positive impact, but it could provide a federal and even provincial tax credit during the year of donation.  
  • Have open conversations with their financial advisors on how to achieve major financial goals including how much they should be saving now, and throughout their earning years to hit their savings targets before retirement. This is especially important for those starting young families, realizing their next career move, or thinking about their next big economic step-up. 
  • Consider the financial benefits of a living inheritance, such as the potential tax reductions this form of inheritance could provide now, and in the future. 
  • Identify the estate value of major assets like private, group, mortgage, and credit card protection insurance, in addition to equity in one’s home, to help determine the actual size of one’s estate in the future – even if there is not a lot of extra money available today.  
  • Consider their personal, emotional, and financial reasons for gifting their assets (especially if considering a living inheritance) including: why are they providing this gift and to whom? What is the best timing for sharing said gift? And how could this gift impact current finances and plans for retirement?