Content from Globe & Mail, Financial Planning Report 

November 25, 2022  – If the estimates prove accurate, thousands of Gen Xers and millennials will, collectively, be $1-trillion richer by the year 2026, when the largest intergenerational wealth transfer in Canada’s history is expected to wrap up.

But hanging on to this newfound wealth may be a challenge for many of these inheritors. Research over the years has uncovered consistent patterns of squandered windfalls, with one study finding that one in five adults who inherited a significant sum of money spent or lost all of it. Another study showed 70 per cent of family wealth disappeared by the end of the second generation, and by the third generation 90 per cent of it was gone.

“We have, unfortunately, seen cases of this happening,” says Sara La Gamba, Chartered Life Underwriter (CLU), Certified Financial Planner (CFP) and a senior advisor at SPM Financial in London, Ontario. “In certain situations, it was a case of someone spending their inheritance right away on things like cars or lavish trips or gambling. In other situations, the money was put into investments that turned out badly.”

Wes From, Chartered Life Underwriter (CLU), Certified Financial Planner (CPF) and investment representative at From Financial in Winnipeg, Manitoba, cites some common reasons behind this inability to hang on to an inheritance: low levels of financial literacy, bad advice from family or friends, a tendency towards impulsive behaviour, or the misguided view of an inheritance as a lottery win that can be spent with abandon.

“In general, people who are responsible with money are likely to act responsibly when they receive an inheritance,” says Mr. From. “But even then, they can end up making the wrong decisions.”

The impact of poor financial decisions can become magnified to disastrous proportions when they involve significant amounts of money, says Mr. From. That’s why inheritors of boomer wealth – or, for that matter, all beneficiaries of intergenerational wealth – need to ensure they’re making sounds choices and taking steps to preserve and grow their new wealth.

For some people, a critical first step is reframing how they view their change in fortune, says Mr. From.

“An important thing to keep in mind is that this ‘sudden wealth’ you’ve received probably took years of hard work, saving and investing,” he says. “So, I’ll often tell people to treat their inheritance not like it’s their money but rather their parents’ hard-earned money that’s been entrusted to them.”

Large or small, an inheritance often comes packed in a bundle of mixed emotions that can include grief from the loss of a loved one, anxiety over potential conflicts with family members and excitement at the prospect of getting a bump in net worth. For this reason, Ms. La Gamba recommends a cooling-off period where the inheritance is left untouched. “It’s important to avoid making big financial decisions or making sweeping life changes right away.”

This cooling-off period is also the best time to get professional financial advice, she adds.

“Generally a wealth transfer isn’t just a matter of receiving money – you also have to consider potential implications from a tax perspective as well as questions like how do you make sure the assets stay in your family,” says Ms. La Gamba. “Sometimes these things have already been planned for by the person who left you the money, but that isn’t always the case.”

Whether you’re the one bequeathing or inheriting assets, it’s important to choose an adviser with a solid understanding of financial planning and of wealth transfers and estate planning. Ms. La Gamba and Mr. From, for instance, both hold a Chartered Life Underwriter designation that focuses on developing effective solutions for individuals, business owners and professionals in the areas of risk management, wealth creation and preservation, estate planning, and wealth transfer.

In Ontario, the CLU designation – which denotes a greater level of knowledge and skills, including specializations in complex wealth and estate transfers – is an approved designation for use of the title Financial Planner in Ontario.

“The right advice from the right professional can be the difference between preserving and growing the wealth being passed down to the next generation, or losing it,” says Ms. La Gamba. “Don’t do this alone – get advice from a financial planning professional who has the expertise, experience and credentials.”

An important thing to keep in mind is that this ‘sudden wealth’ you’ve received probably took years of hard work, saving and investing. So, I’ll often tell people to treat their inheritance not like it’s their money but rather their parents’ hard-earned money that’s been entrusted to them.