Mar 162014

Many parents make the common mistake of leaving their children with way too much inheritance all at once. Many children will spend their inheritance unwisely because they haven’t learned how to handle such a large windfall. What parents should do instead is pass down the inheritance gradually throughout the later years of their lives to minimize taxation, and maximize economic utility.

This is a bigger deal than most people realize. A study from MIT looked at U.S. senior citizens and discovered that unmarried older individuals had a median net worth of $165,000 a year before they died. And for continuously married seniors it was $600,000Β before they died. This means that the majority of elderly people die with some amount of inheritance to pass on. The median inheritance in Canada most people can expect is usually over $200,000.

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Estate tax rates in the U.S. vary depending on location and inheritance amount as there could be a maximum exemption threshold. In Canada, we don’t have an inheritance tax πŸ˜€ but we do have to pay taxes on a deemed disposition. Some provinces also charge probate fees of as much as 1.5% on the value of the estate. Here are some reasons why gradually passing down an inheritance earlier may be better.

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Jul 292013

Canadians have been told by pension experts that we are not saving enough for our retirement.Β Since we’re all living longer, we’ll also need more money than our parents did by the time we’re ready to quit our jobs. But one silver lining that people often overlook is that we’ll also be getting more inheritance than in any previous generation.2013_07_boomers2

The average net worth for people usually peak when they’re around the age between 50 and 65. This group of people today are known as the baby boomers πŸ™‚ It is estimated that boomers in the United States will receive $8.4 trillion in inheritances according to the Center for Retirement Research at Boston College. That’s an average of $300,000 per inheriting household. That could mean the difference between retiring at 55 or 65. In last week’s post I mentioned that Canadians have a higher net worth than Americans, so good for us πŸ™‚ Plus Canada doesn’t have any estate tax so that’s even better. Most Canadians (68%) own our own homes, and the average price of a home is $386,000. Even if boomers don’t receive any cash from their parents there’s a good chance they’ll inherit some real estate.2013_07_boomers3

Not everyone is lucky enough to receive an inheritance, but more often than not people do so it should be worked into a financial plan.Β It might be uncomfortable speaking about inheritance with an elderly parent but estate planning is important for the whole family. More people today will receive an inheritance than a company pension, yet lots of people don’t address inheritance as part of their retirement planning. There has never been a better time to be a baby boomer πŸ™‚Β Β The kids have moved out of the house. The government sends you cheques if you qualify for OAS or CPP/SSI. You have more free time than you know what to do with. And most likely there will be some windfall coming your way πŸ™‚ Almost makes me wish I was a boomer. Okay, maybe not πŸ˜›2013_07_boomers1

Random Useless Fact:Β It takes 2400 liters of water to produce 1 hamburger from scratch