A trillion-dollar tsunami': Canadians grapple with unprecedented wealth transfer

[Slava]

Originally Posted by Buff

Unfortunately for my wife, she is not the crappy sibling and is fully aware that she has a fight on her hands because she is the executor of her mom's will. The crappy sibling has no grip on reality and doesn't understand how anything works.


Fortunately for me, I have no siblings to make it things difficult for when I have to the the executor stuff.

You could consider a professional executor. I think more people should because being an executor is not some honor that is bestowed on you; it's a lot of work. If you have complications (or know you will), getting a professional involved is going to cost a few dollars, but it could well be worth eliminating that struggle.

[kipperiggy]

Originally Posted by blankall

Housing used to be the way that average joes built wealth. Now the average joe can't afford a house and rents for much longer. Housing has become an investment, that in many areas of Canada, only the rich can partake in.

Many people are receiving massive payments from their parents to use as down payments on their own homes.

When the capital gains exemption came into place, this was never its intention. It was meant to allow working people to build up wealth, not facilitate tax free transfers between generations of the privileged.

So then it becomes an actual disposition instead of a deemed disposition to reduce tax burden. Though increased housing supply is not a bad thing.

[blankall]

Originally Posted by kipperiggy

So then it becomes an actual disposition instead of a deemed disposition to reduce tax burden. Though increased housing supply is not a bad thing.

You're right. Taxing housing encourages people to hang onto the houses longer, although many boomers are already doing that.

[fotze2]

Originally Posted by Slava

You could consider a professional executor. I think more people should because being an executor is not some honor that is bestowed on you; it's a lot of work. If you have complications (or know you will), getting a professional involved is going to cost a few dollars, but it could well be worth eliminating that struggle.

I didn't find the will stuff to a pain at all. Firebug made that a joke, the bank stuff is what was/is the worst.

Forgot my buds have made me executors and I have told them I would definitely not be insulted if they chose someone else. One buddy is a academic and wants a scholarships set up. I told him not a chance I am doing that, he seemed mad I wouldn't do it. Multiple country estate with ESL family members. Nope.

[Slava]

Originally Posted by fotze2

I didn't find the will stuff to a pain at all. Firebug made that a joke, the bank stuff is what was/is the worst.

Forgot my buds have made me executors and I have told them I would definitely not be insulted if they chose someone else. One buddy is a academic and wants a scholarships set up. I told him not a chance I am doing that, he seemed mad I wouldn't do it. Multiple country estate with ESL family members. Nope.

Yeah and if things are smooth and easy, it's fine. But if you know that the situation is a mess, or it's really complicated, I would look toward a professional. Even if you have a scenario where that "good child" is just not someone who can handle that kind of thing, you might as well pay someone to do it.

[firebug]

Originally Posted by Slava

Yeah and if things are smooth and easy, it's fine. But if you know that the situation is a mess, or it's really complicated, I would look toward a professional. Even if you have a scenario where that "good child" is just not someone who can handle that kind of thing, you might as well pay someone to do it.

To be an executor, the big trust companies typically charge between 4 and 5% of the 1st $2-million dollars of Estate assets and then scale down above that ($25k minimum fee). There are some smaller independent firms that are less expensive... but still not a cheap option.

I do agree that for many Estates it's the wiser choice.

[DoubleF]

Originally Posted by Slava

You could consider a professional executor. I think more people should because being an executor is not some honor that is bestowed on you; it's a lot of work. If you have complications (or know you will), getting a professional involved is going to cost a few dollars, but it could well be worth eliminating that struggle.

This helps avoiding certain things from getting personal, but doesn't help with PITA siblings. This still locks the thing up in probate. The best thing to do is to do certain things while the parents are alive so that the PITA sibling cannot contest or lock anything up. I know one executor that rakes in a ridiculous amount of money per year. He says it's not worth it. It's been like a decade since the parents died and he says he still gets calls at 3AM of one sibling complaining about the other and it's still not resolved.

The best thing to do is have a will that basically auto executes unless unanimous decision making is made. Worst case, put in a poison pill.

Something like: "Within 18-36 months, all assets to be sold and converted into cash. After all liabilities and taxes are settled, the remaining amount is to be disbursed to beneficiaries on a specific percentage basis... unless 100% of beneficiaries agree on an alternative."

Poison pill: "If my estate is not settled within 36-48 months, I request that all my assets be sold and the proceeds will be donated to a specific charity/foundation. My beneficiaries may request to receive an appropriate donation receipt for the proceeds donated to the charity/foundation, otherwise, the donation receipt is to be for my estate."

Basically, you need to leave behind a veto (ie: auto executes a specific wish unless there's a unanimous agreement for an alternative) and a time limit (otherwise it could go on forever without auto executing). It also helps if there's incentive for the beneficiaries to cooperate vs accepting the alternative (ie: Poison pill).

I know someone, who is in this scenario. Buddy doesn't care if he doesn't get a penny but knows the sibling might be crazy enough to demand 100% PLUS extra from them personally. There's an endowment clause so the sibling can't pretend that the finances were blurred and go after personal assets that had nothing with the parents. Basically, it's a legal fence that keeps crazy sibling from legally crossing it or claiming that lines were unclear and/or intentionally blurred.

I know someone who took 0% of their inheritance and gave it to sibling. Sibling was still not happy. The individual wrote sibling a cheque for $10K and said, "See, I have nothing left that could have been moms!". Sibling said, "Oh, if you can afford to pay that, you obviously stole even more than the inheritance + $10K." and launched a lawsuit on the other sibling.

Some people are literally crazy and the parents are the only thing keeping them in check. That's why important to having something appropriately representing the parents' wishes/clear instruction of the parents wishes to help clean up those crazy messes/prevent a crazy mess even after the parents are gone.

[CliffFletcher]

Originally Posted by DoubleF

It literally sounds like you're getting to the point your mom should consider getting a tax planning engagement done. Start doing some of the estate transfers to the beneficiaries/kids earlier and while mom is still alive.

I understand this is probably the best approach financially. But as the person holding enduring power of attorney for both my parents (my dad is in a care home), I’m concerned about the ethical and legal considerations of drawing tens of thousands of dollars out of my mom’s financial assets and gifting it to me and my sister. My parents don’t have the capacity to make financial decisions of their own, so they can’t really give consent.

[Fighting Banana Slug]

Thanks to the SME's out there, this has been really informative.

Quick question: on a terminal return, a charitable donation via the will would create a tax credit, correct? My dad wants to make a fairly sizable gift to a museum and I thought it might be better to do it while he is alive, but he really wants to amend the will. I don't really care either way, but want to make sure the basic tax rules would apply.

[Nufy]

Originally Posted by CorsiHockeyLeague

Houses are a special case because of the principal residence exemption. So if you inherit it from your parents and you live there, then no, you wouldn't be taxed on that sale. If you inherit it, keep your current residence and sell your parents' home, you would get taxed, but only on the increase in value between when you got it and when you sold it. If you inherit it one day and sell it the next, there should be no tax bill.

If you are already on title and the parent passes away...

Currently my wife and BIL are on title with my MIL for her condo.

Its fully paid off so there are no mortgage / estate concerns.

What are the tax implications in that situation.

Are there still inheritance taxes?

[opendoor]

Originally Posted by Nufy

If you are already on title and the parent passes away...

Currently my wife and BIL are on title with my MIL for her condo.

Its fully paid off so there are no mortgage / estate concerns.

What are the tax implications in that situation.

Are there still inheritance taxes?

In that situation, there can be tax implications if it increased in value after they were put on the title. Because it's (presumably) not their principal residence, they don't get the exemption from capital gains taxes if the property increases in value.

If it was set up as a trust or there's formal documentation showing that their share of ownership is small, then it might not be a big deal. But if they were just added to the title willy nilly, then the CRA will likely assume that they each own 1/3rd of it, so they'd each be liable for taxes on 1/3rd of the gain since that happened.

So no inheritance taxes per se (and in fact, the condo would be excluded from the estate because it would simply transfer to the surviving owners), but depending on how it was set up they might be liable for capital gains. Whereas if it just remained 100% in the mother's name, then there would be no capital gains taxes owing because she could use the principal residence exemption on all the gains. But if the gain is small, then it's really not a big deal.

[kipperiggy]

Originally Posted by Nufy

If you are already on title and the parent passes away...

Currently my wife and BIL are on title with my MIL for her condo.

Its fully paid off so there are no mortgage / estate concerns.

What are the tax implications in that situation.

Are there still inheritance taxes?

Originally Posted by opendoor

In that situation, there can be tax implications if it increased in value after they were put on the title. Because it's (presumably) not their principal residence, they don't get the exemption from capital gains taxes if the property increases in value.

If it was set up as a trust or there's formal documentation showing that their share of ownership is small, then it might not be a big deal. But if they were just added to the title willy nilly, then the CRA will likely assume that they each own 1/3rd of it, so they'd each be liable for taxes on 1/3rd of the gain since that happened.

So no inheritance taxes per se (and in fact, the condo would be excluded from the estate because it would simply transfer to the surviving owners), but depending on how it was set up they might be liable for capital gains. Whereas if it just remained 100% in the mother's name, then there would be no capital gains taxes owing because she could use the principal residence exemption on all the gains. But if the gain is small, then it's really not a big deal.

To be clear though, this is the existing capital gains tax.

Canada does not currently have an inheritance tax.

But you can trigger taxes through inheritance of assets via capital gains.

Clear as mud?

[The Yen Man]

Originally Posted by Nufy

If you are already on title and the parent passes away...

Currently my wife and BIL are on title with my MIL for her condo.

Its fully paid off so there are no mortgage / estate concerns.

What are the tax implications in that situation.

Are there still inheritance taxes?

From a capital gains perspective, technically, it would be 2/3 investment property, and 1/3 principle residence. Taxes on the condo would be the same if your MIL decided to sell her condo tomorrow. Her portion would not be taxed, but your wife and BIL would be (it would be the gain in value on the condo from when your wife and BIL were added to the title up to now).

[firebug]

Originally Posted by CliffFletcher

I understand this is probably the best approach financially. But as the person holding enduring power of attorney for both my parents (my dad is in a care home), I’m concerned about the ethical and legal considerations of drawing tens of thousands of dollars out of my mom’s financial assets and gifting it to me and my sister. My parents don’t have the capacity to make financial decisions of their own, so they can’t really give consent.

You'll need to consult a lawyer in your jurisdiction, but it is generally the case that as Attorney you have a fiduciary responsibility to your parents and can only act in their best interest... and not in the interest of any beneficiaries.

[DoubleF]

Originally Posted by CliffFletcher

I understand this is probably the best approach financially. But as the person holding enduring power of attorney for both my parents (my dad is in a care home), I’m concerned about the ethical and legal considerations of drawing tens of thousands of dollars out of my mom’s financial assets and gifting it to me and my sister. My parents don’t have the capacity to make financial decisions of their own, so they can’t really give consent.

Ask each other, "What would our parent's intentions be?" (better yet, ask them if you are able to). If the intention would have been to benefit the kids and not the government, and there's no legal issues then I don't see a problem. I'm not saying just cut a cheque. I'm saying talk to a lawyer vs never knowing the real rules. This is especially important to ask if one of the beneficiaries is struggling financially and the parents have free cash flow.

I know someone who was like this and in deep financial distress due to a divorce. They too said, "Unsure ethics." so I told them to understand the issue instead of never exploring it. They got the lawyers to draft up everything and formalize it (vs just cutting cheques as POA), but they finally did. Lawyer said their situation was OK.

Basically, it just circles back if you are doing something that if the parents wouldn't hesitate to do, then I don't think it's an ethical issue at all. I absolutely understand not wanting to do it at all if there's no need for the money, but if one of the beneficiaries has financial struggles and there's going to be unanimously no issues at all for doing this (ie: no beneficiary discontent), consider it and talk to a lawyer.

Originally Posted by Fighting Banana Slug

Thanks to the SME's out there, this has been really informative.

Quick question: on a terminal return, a charitable donation via the will would create a tax credit, correct? My dad wants to make a fairly sizable gift to a museum and I thought it might be better to do it while he is alive, but he really wants to amend the will. I don't really care either way, but want to make sure the basic tax rules would apply.

Donation of cash or art? Cash is straight forward, art is a clusterF, especially with finding someone third party to appraise its FMV to CRA's satisfaction. Donations (less advantage) create a non-refundable tax credit, yes.

Overly simplified, but on a terminal return, special rules for donations for limits and usage, but overall still basically same mechanics as donations for a living person. If there's excess donations that can't be used up, there's seepage (government wins).

If cash, just tell dad to save the $500 amendment fees (or whatever the cost) and just donate $500 more to the museum instead. Perhaps ask him if he wants to benefit the museum, lawyers or the beneficiaries more. You don't care either way.

If art, then I understand the concept of putting it in the will, but make sure the beneficiary (ie: Museum) even wants the art. I've seen this happen and create a limbo situation.

I've told people that beneficiaries aren't just kids and friends. It can be charities near and dear to your heart as well.

I agree with you that if dad is just spending a few hundred to donate a few thousand in cash to a museum later on... that's wasteful and do it while alive. But if it's a slightly more complicated situation or a non-monetary/stock donation, I sorta understand the reasoning to include it on the will, but I'd still try not to do it. I've seen a multi-millionaire give gifts of like $500-1000 to like a dozen friends upon death. Half of them were already dead. Luckily, the executor knew all of the families and it didn't turn into a nightmare to fulfill.

[Strange Brew]

Originally Posted by CliffFletcher

I understand this is probably the best approach financially. But as the person holding enduring power of attorney for both my parents (my dad is in a care home), I’m concerned about the ethical and legal considerations of drawing tens of thousands of dollars out of my mom’s financial assets and gifting it to me and my sister. My parents don’t have the capacity to make financial decisions of their own, so they can’t really give consent.

I have this exact situation, but assuming your elderly parent is in a lower tax bracket than you, it's not horrible that they continue to hold their investments.

[bizaro86]

Originally Posted by Strange Brew

I have this exact situation, but assuming your elderly parent is in a lower tax bracket than you, it's not horrible that they continue to hold their investments.

It might, however, be a good idea to get those investments out of RRIFs and into non-registered accounts (or ideally TFSAs if there is room).

Paying tax gradually at low rates is probably better than being in the top tax bracket in the year of death because it all comes out at once.

[Strange Brew]

Originally Posted by bizaro86

It might, however, be a good idea to get those investments out of RRIFs and into non-registered accounts (or ideally TFSAs if there is room).

Paying tax gradually at low rates is probably better than being in the top tax bracket in the year of death because it all comes out at once.

Oh for sure. But that is kind of independent of transferring assets to family members.

Overall most people with elderly parents are hopefully not in need of access to their future inheritance; if so they have bigger problems. By that stage of life you should have built the nest egg for your own retirement and that future inheritance can be used to help grandchildren successfully launch.

[Sr. Mints]

With this massive wealth transfer happening--a trillion in Canada so I'm just going to assume far, far more in the U.S. and other countries with similar demographics--what happens if a big chunk of that capital gets pulled out of the market?

If boomers are cashing out and their heirs use the dough to pay down debt, buy stuff, etc., instead of reinvesting, how could that shape the markets over the next 10, 20, or 30 years? That’s a lot of money moving around - not exactly a drop in the bucket.

[Strange Brew]

Does it really matter that much how the money is spent? Frankly if it gets plugged back into the economy vs. invested that’s probably a positive.