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tim cestnick

It’s no secret that Canadians carry a lot of debt and many children would benefit from an inheritance to help pay it down. You may want to consider giving some of that inheritance while you’re still alive to help the kids now.Getty Images/iStockphoto

Perhaps you've heard the story going around of the elderly gentleman who had amassed much wealth. A young boy asked him how he had made his money. "Son, in 1932 I had nothing but a nickel to my name. So, I bought an apple with that nickel. I polished that apple until it shone, and then sold it the next day for a dime. Then I invested that dime in two more apples, polished them, and sold them for 20 cents. After a few days, I had accumulated a fortune of $3.20." The boy was surprised by the simplicity of his answer. "And that's how you built your fortune?" the boy asked. "Heavens, no!" the man replied. "Then my wife's father died and left us $2-million."

The fact is, an inheritance can make a significant difference to the financial well-being of your heirs. If you're planning to leave money behind, there are some common factors to think about that can lead to stress in the family unless you take steps to plan ahead. Here are the top 10 key factors to consider.

1. Canadians are living longer.

According to the Office of the Superintendent of Financial Institutions (OSFI), a male born today has a life expectancy that is 11 years longer than those born 50 years ago. A female born today can expect to live eight years longer than those born 50 years ago. The implications? Some kids are expecting an inheritance perhaps sooner than reality may dictate, and some are counting on it as part of their planning. They'll probably have to wait longer to inherit assets from you than you've had to wait to inherit from your parents – and they need to know that.

2. Costs of care are high.

Good estate planning requires that you estimate the value of what you're likely to leave behind. When doing this, don't forget that the costs of care as you get older can be significant. The costs of a nursing home, in-home care and necessary home renovations to accommodate age-related impairments can completely change the expectation as to how much will be left over when you're gone.

3. Dementia can be a problem.

The relationship between siblings can become strained when a parent suffers from dementia as the kids try to figure out what to do with the money and assets. Don't leave anything to chance, or assume that the kids will agree on things. Make sure you have an enduring power of attorney to provide authority to a trusted individual to make your financial decisions for you. Further, it's a good idea to prepare a written letter of wishes to provide guidance to the kids about how you'd like to see your money and assets managed. Then sit down and share that letter with the kids – have a conversation – while you're still thinking clearly.

4. Children are in debt.

It's no secret that Canadians carry a lot of debt. In some cases this is not due to poor spending habits but is a function of the cost of buying a home in Canada today. Many children would benefit from an inheritance to help pay that debt down. You may want to consider giving some of that inheritance while you're still alive to help the kids now.

5. Transfers can create confusion.

If you're going to transfer money to your kids today, be sure there is clarity around whether it's a loan, advance or gift. A loan is to be repaid to you during your lifetime (or to your estate if you die prematurely). An advance is simply that – an advance on the inheritance they will receive one day and will reduce what is received after you're gone. Finally, a gift does not have to be repaid and is over and above any inheritance you leave behind. Be sure to document the loans or advances so that these amounts are tracked. Make sure your executor understands your intentions with these loans, advances or gifts and knows where to find a summary of the amounts so that a proper accounting can be made after you're gone. If your intentions are unclear, there could be a battle between heirs when it comes to figuring out the amounts to be distributed.

6. Conflicting documents can exist.

If you've signed an enduring power of attorney so that your assets can be dealt with in the event you're incapacitated, that's great. But have you also signed a separate power of attorney on file at your financial institution? It's commonly done. Make sure these powers of attorney provide authority to the same individual, otherwise there could be confusion around who can manage certain assets.

7. Children are mobile.

Along with an economy that is more global than ever, we're finding that children often end up in other provinces, or countries, when establishing their careers and families. This can create challenges. For example, naming a resident of a foreign country as an executor can complicate the distribution of your assets after you're gone by requiring that person to post a bond before acting as an executor. Further, leaving an inheritance to a child in another country dictates that you should obtain estate-planning advice that takes this into account. It's not uncommon, for example, to leave assets to a U.S.-resident child in a trust for them, to help the child avoid U.S. estate tax on those dollars later.

8. Blended families create complexity.

If you're in a second marriage, be sure to carefully consider what you'd like to have happen to your assets if you die before your spouse. Some parents would like to see their assets go to their children from their first marriage. In this case, you might leave those assets directly to your kids when you die, or perhaps a spousal trust might make sense so that your surviving spouse can receive the income from your assets while he or she is alive, but the assets themselves will go to your children once the surviving spouse dies. Consider also the case where you might have, say, two children from your first marriage and three stepchildren from your second marriage. If you want all five children to inherit the assets, will you provide one fifth to each child, or should half of your assets go to your two children from your first marriage and the other half to your three stepchildren? Speak to a trusted lawyer about these issues.

9. Many don't have a will.

If there's the potential for any stress in family relationships and disagreements over your estate after you're gone, dying without a will is surely a catalyst to bringing out the worst in everyone. According to LawPro, a company that provides insurance to the legal profession and was founded by the Law Society of Upper Canada, 65 per cent of Canadians do not have a will. Not good. Make this a priority if you don't have a will today.

10. Families rarely talk.

If you haven't yet spoken to your heirs about your estate plan, be sure to make this a priority. You don't have to share with them actual dollar numbers (although in some cases this may be prudent), but speak to them about what will happen when you're gone. Get their perspective on your plan – particularly when it comes to assets like a cottage or the family business – and discuss any other issues I've listed in this article that mean be a problem for your family. These conversations could save relationships later.

Tim Cestnick is managing director of Advanced Wealth Planning, Scotiabank Global Wealth Management, and founder of WaterStreet Family Offices.