The economic downturn is dampening Canadian baby boomers’ expectations for inheritances, a recent survey by the BMO Retirement Institute reveals.

In a May survey of more than 1,000 Canadians 45 years of age and older, nearly 20% of respondents said they would be unable to leave an inheritance due to current economic turmoil.

Nearly one-third of those expecting an inheritance felt it would be smaller than previously thought due to the recent economic crisis. Furthermore, almost one quarter of respondents said they would be relying more heavily than expected on their inheritance to reach their financial goals due to the downturn.

But despite the economic downturn, a $1 trillion transfer of wealth is expected to take place in Canada over the next 20 years, marking the largest transfer in history. And most families have not adequately addressed the challenges involved, a related report on inheritances from the Retirement Institute argues.

The survey showed that almost 30% of Canadian boomers are expecting to receive an inheritance from someone in their immediate or extended family.

A significant proportion of these families may not be properly prepared to manage this inflow of cash, according to the report. It finds that many families avoid candid conversations about death and the transfer of estates, which can negatively impact retirement planning.

“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,” said Tina Di Vito, director of retirement strategies at BMO Financial Group and head of the BMO Retirement Institute, a think tank that provides perspectives on retirement issues.

Families planning for an inheritance should be aware that its size could be impacted by such factors as unanticipated events and health care expenses, challenging markets, interest rates and inflation, and taxes on death, according to the BMO report. It points out that 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.

“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 Di Vito. “Communication with advance planning is key and keeping your intentions a mystery until death can have negative consequences.”

The survey also found that 80% of boomers and 77% of seniors have not spoken with a financial advisor about what to do with their inheritance. A hefty 64% of boomers and 52% of seniors admitted that they do not plan to talk to an advisor about their plan to leave an inheritance.

IE