We’ve all seen the bumper sticker that reads: “I’m spending my kids’ inheritance.” It’s funny, right? Think again, states Toronto-based HomEquity Bank.
According to the results of the 2016 Seniors’ Views of Inheritance survey recently conducted for that firm, a surprising 86% of Canadian seniors are unwilling to “forgo doing, achieving or acquiring something” in order to provide a larger inheritance for their children. These findings should raise a red flag for financial advisors working with clients who are banking on a large inheritance to carry them through retirement.
Other key findings from the survey: 62% of Canadians aged 55-plus are not very concerned about ensuring there is an inheritance left for their children after those seniors have fulfilled their own needs and wants. That concern is even less of an issue for those 65-plus, with 71% stating they are not very concerned about leaving an inheritance.
“We were shocked with the results,” says Yvonne Ziomecki, senior vice president, marketing and sales, of Toronto-based HomEquity Bank, a major provider of reverse mortgages.
The “spending on the bucket list” vs “leaving an inheritance” issue is a dilemma for advisors working with adult-aged children who may know little about their parents’ wealth and estate plans.
“[The terms of a parent’s will comprise] the elephant in the room,” says John Klaas, a retired financial planner and now adjunct professor with the Rowe School of Business at Dalhousie University in Halifax.
In Klaas’ experience, there are two groups of adult children: those happy to have their parents spend their savings to zero and those who may be financially challenged and counting on some sort of inheritance. The latter group may not have any idea of their parent’s finances or intentions, he adds.
The financially dependent group and their advisors could be too high or too low in their inheritance expectations. On one hand, children tend to underestimate their parents’ resources, says Klaas. On the other hand, end-of-life costs are so high that potential inheritances can be gobbled up.
“Trying to use some expectation of inheritance for planning is tricky,” says Klaas, “unless [the family is] very wealthy.”
Daniel Roy, a financial advisor and certified retirement coach with Praxis Wealth Management in Ottawa, says advisors should face the issue of a potential inheritance directly with clients – even if raising the topic is awkward. “When I’m looking at possible sources of income when we are planning for [a client’s] retirement income program, the likelihood of [the client] receiving an inheritance is definitely a question to ask,” he says. “If you don’t ask that, you are definitely missing the mark.”
But adult children counting on a financial legacy from their retired parents may be rewarded; their parents may be sitting on a real estate windfall, says Ziomecki: “The majority of our clients know there will still be an inheritance that will go to their children. In fact, on average, our clients have more than 50% of the equity left in their homes at the time of [the estate] sale.”
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