Don't waste your inheritance – MoneySense

The essential guide to estate planning

Neglecting your estate planning is like leaving your garden unattended for several seasons. What starts as a small oversight can turn into a forest of problems. Shockingly, two-thirds of Canadians have not written their estate plans, according to a 2024 study by IG Wealth Management, despite an expected $1 trillion in assets to be bequeathed over the next decade.

If a large amount of money remains with a person who did not receive it during his lifetime, it can lead to a problem of challenges. Financial mismanagement, family discord and even legal battles may arise. Heirs may feel overwhelmed, unsure of how to handle their sudden wealth, leading to anxiety and poor financial decisions. As the saying goes, “Come easy, go easy.”

Pitfalls of inadequate estate planning

Without proper planning, the transfer of wealth can lead to several challenges for your heirs:

1. Risk of fraud and exploitation: Uninformed heirs can become victims of financial fraud and exploitation. Falling victim to such schemes can lead to huge financial losses, jeopardizing the inheritance intended to support their future.
2. Family conflicts: Unclear inheritance plans can cause serious conflicts between family members. Clear and well-written plans are important in preventing misunderstandings and ensuring that wealth is distributed according to the beneficiary's wishes.
3. Tax implications: An unplanned transfer of wealth can result in a significant tax burden, reducing the total value of the estate. Strategic planning can help reduce these taxes, preserving more wealth for beneficiaries. Proper estate planning can save heirs from unexpected tax debts and ensure a smooth transfer process.

Key considerations for wealth transfer

To avoid these pitfalls and ensure a smooth transfer of wealth, parents and grandparents should consider the following strategies:

1. Clear communication: Talk openly with your children and grandchildren about your plans. Surprise inheritances may feel like an inheritance, but they can also bring confusion and stress. An honest conversation early on can prepare them mentally and emotionally for the responsibilities that come with managing wealth.
2. Scheduled distribution: Rather than a lump sum transfer, consider limited distributions or mutual funds. This approach can help reduce the risk of financial mismanagement. Setting up a trust can ensure that your heirs receive funds in a controlled manner, reducing the temptation to spend.
3. Financial education and literacy: Equip your heirs with the knowledge they need to manage their estate wisely. Financial education programs or meetings with a financial advisor can be very helpful. Informed people tend to make wise financial decisions

Supporting the next generation

When wealth is transferred, so is the responsibility of managing it. Supporting your heirs can make a difference. Here are a few ideas that may help:

• Complete guide: Schedule regular meetings with a financial advisor to review estate management and answer any concerns or questions. This helps ensure that heirs stay on track with their financial goals.
• Note the grief of inheritance: “Inheritance grief” refers to the emotional and psychological challenges heirs may experience when receiving a significant inheritance. It can manifest in a variety of ways, including mourning the loss of a loved one and the changes associated with inheriting wealth. Emotional support, financial education and careful estate planning can help heirs manage their emotions and responsibilities more effectively.
• Contact the family financial plan: I know I've talked about communication before, but I can't overemphasize the importance of this! Develop a family financial strategy that includes goals for wealth management, giving and investing for the future. This plan can serve as a road map for heirs to follow, encouraging good financial behavior and long-term planning.​​

Don't leave it too late