Performance figures for each account are calculated using time weighted rate of returns on a daily basis. The Composite returns are calculated based on the asset-weighted monthly composite constituents based on beginning of month asset mix and include the reinvestment of all earnings as of the payment date. Composite returns are as follows:

Making the Most of an Inheritance


By Stephanie Farrington

Read the original article online.

Many of us are struggling with the fallout from the economic storms of the last few years. Wages are low, jobs are hard to come by and things are looking a little scary for many Canadians nearing the end of their working lives.

For some of us, an inheritance could save the day.

Manulife Investments has gone on record saying more than a trillion dollars in inheritance money will pass from one generation to the next over the next two decades.

With wealth accumulated over some of the most prosperous years in Canadian history, even a medium-sized estate could be worth hundreds of thousands of dollars, if not more.

For example, a house purchased in 1977 in Vancouver would have typically cost well under $100,000. If the property was kept in the family and the mortgage paid off, as is often the case, that same house would be marketable for over $1 million today.

What’s more, since family size has gotten smaller over the last few decades, a person in their fifties today is likely to have fewer siblings with whom to share the inheritance pie, while having a much bigger pie to share.

That’s good news if you’re one of the millions of Canadians who have found it hard or even impossible to save for retirement.

But before you rely on a legacy to finance your own golden years, there are several considerations to keep in mind.

Challenged wills

If you think a will is set in stone, think again.

“Any will can be challenged,” says Thomas P. Harding, a Vancouver-based attorney. “Children not treated equally? Challenge. Child says papa always promised him an extra share? Challenge. One child is more in need? Challenge. The good child resents the lazy child getting a full share? Challenge.”

While it can easily take over a year to probate and pay out on a simple estate, Harding says litigation of a complex estate where the will is challenged can stretch out until the entire legacy is spent. For this and other reasons Harding says, “The death-watch beetle is not a good retirement strategy.”

Talk it out

One way to avoid any unpleasant surprises is to discuss your family’s estate plans before the end. Granted, few like talking about their own death, but many Canadian seniors understand that these things are inevitable and will be open to discussion and planning on the issue.

A good rule of thumb? If it’s worth worrying about, it’s worth discussing. You may even find yourself growing closer to your parents in the process; you’ll certainly learn a lot more about them.

Be tax efficient

Dylan Reece, a financial adviser at Nicola Wealth Management in Vancouver, says, “If the inheritance hasn’t yet been passed to the next generation, there’s an opportunity to speak with a financial adviser and proactively find tax efficient methods for transferring wealth between generations.”

He suggests setting up a “testamentary trust” created by the deceased’s will rather than transfer the bequest directly. This can save income taxes on the investment income, such as interest, dividends and rent, generated within the trust, as it is taxed separately at marginal tax rates. This also allows for an income splitting strategy that could save up to 25 per cent in income taxes, depending on the province of residence.

But he also cautions, “Don’t rely on an inheritance to help you out with debt. Debt compounds over time and we can only hope our parents live long, healthy lives. If and when an inheritance becomes reality, you still have to be aware of income and capital gains taxes.”

Making the most of your legacy

Assuming you’re on the receiving end of a clear will and your family is not litigious, what should you do when you inherit?

Reece says, “We generally recommend paying off any debts, starting with non-tax-deductible debt (personal credit cards, lines of credit, mortgage on principal residence), followed by tax-deductible debt (business or investment loans). After paying off debt, remaining funds can then be invested to provide additional financial security.”

With your debts paid off, your personal cash flow will increase, often quite substantially.

There are other ways you might choose to use your windfall. With mortgage rates at an all-time low, this might be the time to invest in a revenue property. Revenue properties are taxed differently than your principal residence and can provide a source of continuing income that could be the saving grace for your own retirement, as well as providing a place to downsize when you decide the time is right.

Choose a location with a good rental history and consult an accountant and a lawyer on how best to manage your investment. Then your own inheritance could begin to grow a legacy of its own.