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Passing it on: With over $1 trillion to be Transferred Over Next 20 years- Will Inheritance Expectations Meet Reality?

TORONTO, July 15, 2009 – In Canada, it has been estimated that Boomers stand to inherit approximately $1 trillion over the next twenty years . According to new research from the BMO Retirement Institute, despite recent economic turmoil, Canadians' expectations of the massive transfer of wealth to Boomers have not dampened. Regardless of this positive outlook on future inheritances, the study also reveals that most families have not adequately addressed all the challenges associated with the biggest transfer of wealth in history.

The survey indicates that:

Almost 30 per cent of Canadian Boomers are expecting to receive an inheritance from someone in their immediate or extended family
Less than one-third of those expecting an inheritance felt it would be smaller than previously thought due to the recent economic crisis
Almost one-in-four Boomers said they will be relying more heavily than expected on their inheritance to reach their financial goals due to the recent economic crisis
Less than 3 per cent of Canadian Boomers say they will be unable to leave an inheritance due to current economic turmoil

Factors Impacting the Size of Inheritance

While there are obvious uncertainties involved in the transfer of wealth, such as timing and the monetary value of the inheritance, there are less evident factors that may not be top of mind.

The latest BMO Retirement Institute report, Passing it on: What will future inheritances look like?, identifies a number of distinct challenges that can impact the size of an inheritance:

Life Expectancy and Retirement Age
Unanticipated Events and Health Care Expenses
Challenging Markets, Interest Rates and Inflation
Taxes on Death
Family Size

“Despite these challenges, there are strategies that Canadian families can take to help achieve their inheritance vision and maximize the intergenerational transfer of wealth,” said Tina Di Vito, Director, Retirement Strategies, BMO Financial Group. Di Vito also heads up the BMO Retirement Institute, a think tank set up by the Bank to provide leading perspectives and help make sense of retirement issues.

Without consulting a financial advisor, you may not have properly assessed your total wealth – including stocks, bonds, mutual funds, property, businesses, and other important assets that would be available for distribution or given adequate consideration to minimizing taxes due upon death . As a result, heirs may find themselves responsible for settling a hefty tax bill on the death of a loved one.

“For example, an inheritance of an RRSP worth $250,000 could result in taxes owing by the estate of up to $115,000 (assuming top marginal rate of 46%) which may be further reduced by probate, executor, trustee and legal fees,” said Di Vito. Therefore, communication with advance planning is key and keeping your intentions a mystery until death can have negative consequences. The lack of open conversation between generations can be a major contributing factor to poor inheritance and estate planning. It may even lead to misgivings and financial insecurity in retirement for family members.”

A little MORE conversation a little more action

The survey also found that:

80 per cent of Boomers and 77 per cent of seniors have not spoken with a financial advisor about what to do with their inheritance
64 per cent of Boomers and 52% of seniors do not plan to talk to a financial advisor about their plan to leave an inheritance

“More than ever before, Boomers and seniors are encouraged to seek professional advice on topics that impact them financially - such as business succession, retirement resources, long-term care options and estate planning strategies. By having open intergenerational conversations about inheritance and with the help of a professional advisor, Boomers and their families can be empowered to make prudent decisions about their legacy plans,” stressed Di Vito.

About The BMO Retirement Institute

The BMO Retirement Institute, launched in April 2008, provides thought provoking insight and financial strategies for those either planning for or in their retirement years. The Institute was launched to help pre-retirees simplify the complex dynamic between personal finances, personal relationships and retirement lifestyles. Contact the institute by email at bmo.retirementinstitute@bmo.com or visit www.bmo.com/RetirementInstitute

About the BMO Retirement Institute Study

The study is based on a survey of 1,040 Canadians 45 years of age and older, stratified by age, and conducted between May 20 and 28, 2009 using EKOS' hybrid telephone-online Probit panel. Probit uses a random probability technique to recruit respondents and employs an innovative dual mode telephone and online methodology to ensure comprehensive coverage of households and individuals who do not have access to the internet or are not regular internet users. Data were weighted by age, gender and region using the most recent Census data. Being based on random probability sampling, the results can be considered accurate to within /- 3.0 percentage points, 19 times out of 20.

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