Family Dynamics & Estate Planning - Mostly Money Mostly Canadian Podcast

I was recently interviewed by Preet Banerjee for his Mostly Money Mostly Canadian podcast. In lieu of writing a blog post today, I am linking to the podcast here, so you can listen to me for 25 minutes waxing eloquently on topics such as family dynamics, estate planning, the family cottage, personal use property such as art and collectibles and even my bucket list. Here is the link.

I think the interview is pretty good (if I do say so myself) and if Preet had recorded the first run instead of forgetting to push the start button on his recording device, it would have been even better :)

All joking aside, Preet is one smart guy, a terrific speaker and writer and a sort of a Dos Equis most interesting man in the world type of guy. He even started out trying to be a Race Car driver and somehow ended up in the financial service industry. Talk about a downturn in your career.

If you follow personal finance, you will know Preet from his TV appearances on the CBC's National, as a Bottom Line Panelist and/or The Lang and O'Leary Exchange, his writing for The Globe and Mail and Money Sense Magazine or as the host of the TV Show Million Dollar Neighborhood (well actually not sure if anyone watched it, so maybe you don't know him from there). Preet's most recent book Stop Over-thinking Your Money! The Five Simple Rules of Financial Success was a Canadian best-seller.

Finally, you may wish to check out and subscribe to his U-tube Channel, Money School which is informative and often amusing.

Wow, I am exhausted just writing about all the things Preet does, to be young again. Anyways, enjoy the podcast and check out some of Preet's work.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

The Best of The Blunt Bean Counter - Is it Morbid or Realistic to Plan for an Inheritance?

This summer I am posting the "best of" The Blunt Bean Counter while I work on my golf game. Today is my last re-post (where did the summer go?) and I selected a post on whether it is morbid or realistic to plan for an inheritance. I selected this post because it seems to polarize people. They either think it abhorrent to consider planning for an inheritance or don't understand why it is not practical financial planning.

I recently followed this post up with Inheriting Money - Are you a Loving Child, a Waiter or Hoverer, a post that discusses four types of behaviour by those who will inherit money.

Is it Morbid or Realistic to Plan for an Inheritance?

I have written several blog posts on estate planning and inheritances, including “Taking it to the Grave,” a blog I wrote for the Canadian Capitalist, in which I discuss whether parents should distribute future inheritances in part or in whole while they are alive and “How your Family Dynamic can affect your Estate Planning”  in which I discuss how parents have to navigate a minefield of family issues with respect to the determination of executors, the distribution of family heirlooms and the distribution of hard assets.

These blogs elicited a wide range of opinions and comments that I found fascinating. Some people believe they are better off because their parents made them work for everything and they don’t want any financial assistance from their parents either during their life or after they pass away. Others state that as long as parents are careful to ensure they don’t destroy their children’s motivation, partial inheritances make sense. Finally, others say they have been sickened as they observe children waiting at a parent’s deathbed salivating at the thought of their inheritance.

All this leads me to another very touchy subject; should a child (let’s assume the child is at least 40 years old) plan their own future based on a known or presumed inheritance? To add some perspective to this issue, it is interesting to note that a recent survey by the Investors Group states that 53% of Canadians are expecting an inheritance, with over 57% of those, expecting an inheritance greater than $100,000.

Inheritances can be categorized as either known or presumed inheritances. An inheritance would be categorized as known, when a parent(s) has/have discussed the contents of their will with their child(ren) or at least made known their intentions. In these cases, while the certainty of the inheritance in known, the quantum is subject to the vagaries of the parent(s) health, the parent(s) lifestyle, the income taxes due on the death of the last to survive parent and the economic conditions of the day. (Speaking of discussing the will with your children, it is very interesting to note that my blog post One Big Happy Family until we discuss the Will which had limited initial traction, is now by far and away the most read blog I have ever written).

An inheritance may be presumed where the financial circumstances of the family are obvious. A child cannot help but observe that the house their parents purchased 30 or 40 years ago for $25,000 is now worth $800,000 to $1,000,000, or that the cottage their family bought for $100,000 many years ago can be subdivided and is now worth $700,000.
Many average Canadian families have amassed significant net worth just by virtue of the gains on their real estate purchases. These families would not be considered wealthy based on lifestyle or income level, yet their legacy can have a significant impact upon their children. Inheritances are not only an issue for wealthy families.

I think most people will agree that where an inheritance will be so substantial that it will be life changing; parents need to downplay the inheritance issue and/or manage the inheritance by providing partial gifts during their lifetime. Rarely can a child become aware of a life-changing inheritance without losing motivation and experiencing a change in their philosophical outlook on life.

Although life changing inheritances are rare, life "affecting" inheritances are not. So, should children change how they live and how they plan for the future based on a known or presumed future inheritance? In my opinion, if the inheritance is known and will be substantial enough to alter a child’s current or future living standard, the answer is a lukewarm yes, subject to the various caveats I discuss below.

I think it is imprudent to ignore reality and where an inheritance has the attributes I note above, it should be considered as part of your future financial plan. However, I would discount the amount used for planning purposes significantly, to account for inherent risks. Those risks include the longevity of a parent, economic downturns that reduce your parent(s) yearly income stream,  potential medical costs and finally, the ultimate risk one takes in planning for an inheritance; the risk of somehow falling out of favour and being removed from your parent(s) will.

Where there is a presumed inheritance, I would suggest you need to be ultra conservative if you want to plan for the inheritance, since not only are you guessing at the inheritance amount, but you face an additional risk that your parent(s) may have offsetting liabilities such as a mortgage or line of credit of which you are unaware.

So what do the experts have to say on this matter? In the press release for the Investors Group survey, Christine Van Cauwenberghe, Director, Tax and Estate Planning, says that "Knowing the dollars and cents behind your inheritance can have an impact on your financial plans. It is smart to know what you can expect so you can plan accordingly and family dialogue is a good place to start."

Ted Rechtshaffen, a certified financial planner at Tri-Delta Financial, in a National Post article I discuss below, says "he may be in the minority but he encourages clients to count on their inheritances when planning to some degree." He however, goes on to say he tells clients to be super-conservative. Finally, he concludes with "I know it goes against the grain because you are counting on money you don't have", adding, "it depends where your parents are in their life cycle and how clearly they have signalled their intentions".

I think Christine and Ted's comments clearly point out the conundrum here, for which there is no black and white answer. It is probably unwise to ignore a known potential inheritance, but because the final inheritance is subject to so many variables, you must risk assess that inheritance and discount its quantum by a significant amount, such that your planning becomes a paradoxical situation.

But what if you see no risk in your parent(s) financial situation deteriorating and you feel you will never be removed from the will, how can your financial planning be affected? For argument’s sake, let’s say your inheritance will be large enough to affect your future planning, but not large enough to affect your motivation or change your lifestyle.

The most obvious change to your financial plan may be to underfund your RRSP. Most Canadians struggle to make yearly RRSP contributions. They live in mortal fear that they will not have enough money to live the retirement they envision. But, if you know your parent(s) have enough funds to live out their life/lives comfortably, and say your inheritance will be in the $300,000 to $500,000 range, do you need to make your maximum RRSP contributions?

Other planning issues include whether you should purchase a home out of your price range or underfund your children’s education fund, knowing that you will receive an inheritance to pay off the mortgage or to pay off any education related loans. Alternatively, you may over fund your child’s education by sending them to a private school you would never had considered without knowledge or presumption of a future inheritance.

How you deal with debt could also be affected. If you have debt, should you just limit it to a manageable level and not concern yourself with paying it down? Or alternatively, should you pay it off because you can reallocate funds once committed to your RRSP, TFSA or RESP, knowing your inheritance will cover your RRSP, TFSA or RESP?

We have all heard about about the huge debt level many Canadians are carrying. Based on comments made by Benjamin Tal, deputy chief economist for the CIBC, one wonders if at least subconsciously some of this debt level in being carried because people know they have an inheritance coming? Mr.Tal in an article in the Toronto Star on Baby boomers set to inherit $1 trillion says "people talk about how much debt there is without looking at the size of the potential assets to come. Debt is relative to your income today, but your wealth tomorrow will improve when an inheritance comes."

So, have I seen people bank on an inheritance? Yes. To date, where I have observed such behaviour, the inheritances have come as expected. However, these cases may not be predictive of future cases.

Is it morbid to plan for an inheritance? Clearly, it is. Would most people rather have their parents instead of the inheritance? Yes. This topic is a very touchy subject and an extremely slippery slope, but to ignore the existence of a significant future inheritance that would impact your personal financial situation may be nonsensical.  However, if your financial planning takes into account a future inheritance, you should ensure you have discounted that amount to cover the various risks and variable that could curtail your inheritance and be extremely conservative in your planning.

Post script:

As the expression goes "Those who hesitate are lost". I started writing this blog back in late November, but could not come to a conclusion (if one can call the lukewarm recommendation I suggest above a conclusion) until recently on whether one should or should not plan for an inheritance. Thus, this blog post just sat. In the interim there have been two excellent articles on this topic. The first by Garry Marr of the Financial Post, titled Windfall no sure thing from which I quote Mr.Rechtshaffen above and another article by Preet Banerjee of the Globe and Mail, titled An inheritance should be a windfall, not a financial plan.

In Preet's article he notes the potential flaws of incorporating an inheritance into your financial plan. He also concludes with some words of wisdom "There are enough variables affecting your own financial success. Ideally, you shouldn’t bank on an inheritance in your financial plan, but rather treat it as an unexpected windfall. Most people would rather give it up in exchange for having their parents back".

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

RRIFs - How they Work and Tax Planning

By the end of the year in which you turn 71, you are required to terminate your RRSP. You have three viable options at that point.

1. You can transfer your RRSP savings into a Registered Retirement Income Fund (“RRIF”).
2. You can transfer your funds into an annuity.
3. You can blend the RRIF and annuity option.

There is a fourth option, which is to withdraw the full value of your RRSP; however, unless you have a very small RRSP, this option is a non-starter.

Today, I am going to discuss the RRIF option. I will likely write about annuities at some point in the future. Many investment advisors suggest that you consider using some portion of your RRSP to purchase an annuity to provide a fixed stream of income in retirement, especially if you don’t have a company pension upon retirement. Rob Carrick wrote this article last week on how you can use annuities in your retirement.

The RRIF Rules

RRIFs are subject to an annual minimum withdrawal, which commences the year after you open your RRIF account. The minimum withdrawal amounts are based on a percentage of the value of your RRIF. The standard percentages are noted below.

Age*	RRIFs established after 1992	Age*	RRIFs established after 1992
71	7.38%	83	9.58%
72	7.48%	84	9.93%
73	7.59%	85	10.33%
74	7.71%	86	10.79%
75	7.85%	87	11.33%
76	7.99%	88	11.96%
77	8.15%	89	12.71%
78	8.33%	90	13.62%
79	8.53%	91	14.73%
80	8.75%	92	16.12%
81	8.99%	93	17.92%
82	9.27%	94 or older	20.00%
* On January 1 of the year for which the minimum amount is being calculated.

 

The minimum withdrawal rates may force you to withdraw more funds than you need to live and push you into a higher income tax bracket. Fortunately, you can elect to have the withdrawal minimums based on the age of a younger spouse or common-law partner. This election cannot be changed once you select the spousal age option.

If you have a spouse under the age of 71 the minimum percentage is calculated as 1 divided by (90 minus your spouse's age). As per this article by Preet Banerjee, if your spouse is only 50, you would only have to withdraw 2.5% [1/(90-50)].

The website RetirementAdvisor.ca has this excellent RRIF calculator to help you determine your minimum withdrawal rates and whether you should use your age or your spouses. 

Income Tax Planning for RRSPs & RRIFs before Age 71

It may make sense to withdraw funds from your RRSP before you convert it to a RRIF at age 71. You would do this only where your marginal income tax rate will be lower in the years between retirement and when you convert your RRIF at age 71. For example, assume you will have $40,000 of pension and investment income when you retire at age 65. At this level of income, the next $4,000 you earn will be taxed at approximately 24% and the following $27,000 will be taxed at 31%. Thus, you may want to cash in $4,000 and possibly more, since when you must withdraw funds from your RRIF at age 72, you will at minimum be taxed at 31% and possibly higher (depending upon your minimum RRIF withdrawal and your ability to pension split with your spouse).

You also want to manage your total net income so that you will not have to pay back your old age security. The 2014 clawback threshold starts at $71,592 with your OAS being completely clawed-back once your total net income reaches $115,716.

To some, the above may seem simplistic and fairly standard advice. In fact, I was taken to task by a reader for similar advice during my 6 part series on retirement. The reader commented that they "have seen very few models that give a detailed picture of how to manage the drawdown of your RRSP and take into account the minimum RRIF withdrawals". As I like a challenge, I actually attempted to create such a model. Alas, after a couple hours and a brief discussion with Michael James who is a math whiz, I realized this is a herculean task, in which I have little interest in attempting to conquer. Thus, I suggest the only way to deal with this issue is to have your financial planner consider your RRSP drawdown in context of your retirement plan.

As RRIF withdrawals at age 65 and beyond qualify as pension income, they will be eligible for the $2,000 pension income tax credit. Many advisors suggest converting a small portion of your RRSP into a RRIF so that you can claim the pension credit. The pension credit is worth approximately $400 on a $2,000 RRIF withdrawal. Keep in mind you may have to pay an administration fee for your RRIF that could offset some of this benefit.

If you will have earned income in the year of retirement, say 2014, you can make a RRSP over-contribution in December, 2014 (equal to 18% of your 2014 earned income). This will allow you to claim a 2015 RRSP deduction. You will pay a one month over-contribution penalty of 1% for your December over-contribution; however, your RRSP over-contribution will cease January 1, 2015 (i.e. If your 2014 earned income is $100,000, you can make a $18,000 over-contribution in December, 2014. You will owe a $180 penalty, but can deduct the $18,000 RRSP contribution on your 2015 return even though your RRSP is now a RRIF).

If you have a younger spouse and you have RRSP contribution room, you can contribute to a spousal RRSP up to and including the year in which they turn 71.

Most people know they must convert their RRSP to a RRIF by the end their 71st year, but give no heed to any planning before the year of conversion. As noted above, tax planning should begin with your RRSP/RRIF in your early to mid-sixties.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs. Please note the blog post is time sensitive and subject to changes in legislation or law.

Podcast, Tax Tweets and Contest

I have a few things to briefly discuss today. Last week was a very productive week media and content wise. I was quoted extensively in this CBC article about the 6 top reasons people raid their RRSPs and interviewed for a podcast. I created some material for a tweeting initiative and finally wrapped up a 3 part blog, which I will be posting next week on owner-manager remuneration that took forever to complete.

Mostly Money, Mostly Canadian - Podcast

Last week I was interviewed by Preet Banerjee for his Mostly Money, Mostly Canadian podcast. I discuss income tax issues and "Income Tax Horror Stories". The link for the podcast is here. Preet also interviews Mike Holman of the Money Smarts blog about what to look for in a real estate agent. I start around the 22 minute and 30 second mark. The reviews from family and friends were very positive. They thought I was informative and even funny, which beats the reviews from my Rob Carrick videos , were they coldly told me I needed media training. I guess I should stick to radio or podcasts.

I would like to thank Preet for interviewing me. I had a lot of fun and for a TV show host; Preet is pretty down to earth. Although as I told him on Twitter, he is only the second best looking host of his TV show, The Million Dollar Neighbourhood :).

Tax Tweet of the Day

My firm’s marketing manager, Jamie, is very keen on social media. She constantly chides me for my half-hearted embrace of Twitter, as I am still not convinced that Twitter is an effective medium for accountants. Although, I must say I really enjoy that Twitter allows me to chirp the Big Cajun Man about the Ottawa Senators and mock others such as Preet.

If Jamie is one thing, she is certainly persistent and for the last month or so I have been a good little Blunt Bean Counter and tweeted as much as possible. I have thus decided to placate Jamie some more and came up with this brilliant idea of tweeting a tax tip of the day during tax season beginning next week.

For the first 10 days I will tweet organizational tips to get ready for filing your tax return. Then for the next 25 days or so, I will tweet tax filing and planning tips. Feel free to let me know if these tips are of any use or whether my brilliance is too constrained by the 140 character limit. Look for the hashtag #blunttaxtip.

Rob Carrick Book Giveaway Part-2

Perry K, the young adult book giveaway winner of Rob Carrick’s book “How Not To Move Back In With Your Parents” has not claimed his book. Anyone, young adult or adult, who made a comment on the original blog and still wants a copy of the book, can go back into a draw being undertaken this Friday, by sending their name and address to Lynda@cunninghamca.com.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

The Blunt Bean Counter noted in The Globe and Mail

Thanks to Preet Banerjee for referencing me today in his Globe and Mail column. His column today is titled "Share your family fortune now to reap the rewards". Preet is a well-known financial expert, who writes a column for the Globe and Mail, is the money expert on the W Network and is the blogger behind the blog WhereDoesAllMyMoneyGo.com. I am not sure if he still has another real job :)

I would also like to give Preet props for participating in my Bloggers for Charity initiative, in which he raised $5,000 for charity. He is obviously an altruistic financial guy; yes, I know that term is usually an oxymoron.

This is the fifth time that I know of, that one of my blogs has been at least in part an inspiration for a newspaper column. Preet's column today quoted from my blog "A Family Vacation- A Memory worth not Dying for". Personally, it is self-satisfying when my blogs provide an inspirational thought or idea for others, given the time and effort required to create many of the blog posts.

I am particularly pleased that only one of the inspired newspaper columns has been an income tax based article. I look at my income tax blogs as loss leaders. I write income tax blogs since they show a professional competence (or incompetence) and they fill an information void since I think there is only one other mainstream blogger (Canadian Tax Resource) doing such that I am aware of. 

However, what I really enjoy writing are my blog posts on how money and finances impact families, relationships and the psyches of individuals. After 25 years of practice as a CA, I have seen most of what is to be seen in that regard, so I write from a perspective of experience.

Since I have severe restrictions on site advertising as a Chartered Accountant, I am not blogging for financial gain (although I do get the occasional client from my blog), but mostly because I enjoy doing so and as such, I appreciate it when columnists such as Preet, Roma Luciw, Rob Carrick and other financial bloggers, most notably Boomer & Echo, Canadian Capitalist, Big Cajunman, Michael James, Jim Yih,  My Own Advisor and Money Sense Online appreciate my blog posts whether as an inspiration for a column or as a recommended read. Thanks!

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Is it Morbid or Realistic to Plan for an Inheritance?

I have written several blog posts on estate planning and inheritances, including “Taking it to the Grave,” a blog I wrote for the Canadian Capitalist, in which I discuss whether parents should distribute future inheritances in part or in whole while they are alive and “How your Family Dynamic can affect your Estate Planning”  in which I discuss how parents have to navigate a minefield of family issues with respect to the determination of executors, the distribution of family heirlooms and the distribution of hard assets.

These blogs elicited a wide range of opinions and comments that I found fascinating. Some people believe they are better off because their parents made them work for everything and they don’t want any financial assistance from their parents either during their life or after they pass away. Others state that as long as parents are careful to ensure they don’t destroy their children’s motivation, partial inheritances make sense. Finally, others say they have been sickened as they observe children waiting at a parent’s deathbed salivating at the thought of their inheritance.

All this leads me to another very touchy subject; should a child (let’s assume the child is at least 40 years old) plan their own future based on a known or presumed inheritance? To add some perspective to this issue, it is interesting to note that a recent survey by the Investors Group states that 53% of Canadians are expecting an inheritance, with over 57% of those, expecting an inheritance greater than $100,000.

Inheritances can be categorized as either known or presumed inheritances. An inheritance would be categorized as known, when a parent(s) has/have discussed the contents of their will with their child(ren) or at least made known their intentions. In these cases, while the certainty of the inheritance in known, the quantum is subject to the vagaries of the parent(s) health, the parent(s) lifestyle, the income taxes due on the death of the last to survive parent and the economic conditions of the day. (Speaking of discussing the will with your children, it is very interesting to note that my blog post One Big Happy Family until we discuss the Will which had limited initial traction, is now by far and away the most read blog I have ever written).

An inheritance may be presumed where the financial circumstances of the family are obvious. A child cannot help but observe that the house their parents purchased 30 or 40 years ago for $25,000 is now worth $800,000 to $1,000,000, or that the cottage their family bought for $100,000 many years ago can be subdivided and is now worth $700,000.
Many average Canadian families have amassed significant net worth just by virtue of the gains on their real estate purchases. These families would not be considered wealthy based on lifestyle or income level, yet their legacy can have a significant impact upon their children. Inheritances are not only an issue for wealthy families.

I think most people will agree that where an inheritance will be so substantial that it will be life changing; parents need to downplay the inheritance issue and/or manage the inheritance by providing partial gifts during their lifetime. Rarely can a child become aware of a life-changing inheritance without losing motivation and experiencing a change in their philosophical outlook on life.

Although life changing inheritances are rare, life "affecting" inheritances are not. So, should children change how they live and how they plan for the future based on a known or presumed future inheritance? In my opinion, if the inheritance is known and will be substantial enough to alter a child’s current or future living standard, the answer is a lukewarm yes, subject to the various caveats I discuss below.

I think it is imprudent to ignore reality and where an inheritance has the attributes I note above, it should be considered as part of your future financial plan. However, I would discount the amount used for planning purposes significantly, to account for inherent risks. Those risks include the longevity of a parent, economic downturns that reduce your parent(s) yearly income stream,  potential medical costs and finally, the ultimate risk one takes in planning for an inheritance; the risk of somehow falling out of favour and being removed from your parent(s) will.

Where there is a presumed inheritance, I would suggest you need to be ultra conservative if you want to plan for the inheritance, since not only are you guessing at the inheritance amount, but you face an additional risk that your parent(s) may have offsetting liabilities such as a mortgage or line of credit of which you are unaware.

So what do the experts have to say on this matter? In the press release for the Investors Group survey, Christine Van Cauwenberghe, Director, Tax and Estate Planning, says that "Knowing the dollars and cents behind your inheritance can have an impact on your financial plans. It is smart to know what you can expect so you can plan accordingly and family dialogue is a good place to start."

Ted Rechtshaffen, a certified financial planner at Tri-Delta Financial, in a National Post article I discuss below, says "he may be in the minority but he encourages clients to count on their inheritances when planning to some degree." He however, goes on to say he tells clients to be super-conservative. Finally, he concludes with "I know it goes against the grain because you are counting on money you don't have", adding, "it depends where your parents are in their life cycle and how clearly they have signalled their intentions".

I think Christine and Ted's comments clearly point out the conundrum here, for which there is no black and white answer. It is probably unwise to ignore a known potential inheritance, but because the final inheritance is subject to so many variables, you must risk assess that inheritance and discount its quantum by a significant amount, such that your planning becomes a paradoxical situation.

But what if you see no risk in your parent(s) financial situation deteriorating and you feel you will never be removed from the will, how can your financial planning be affected? For argument’s sake, let’s say your inheritance will be large enough to affect your future planning, but not large enough to affect your motivation or change your lifestyle.

The most obvious change to your financial plan may be to underfund your RRSP. Most Canadians struggle to make yearly RRSP contributions. They live in mortal fear that they will not have enough money to live the retirement they envision. But, if you know your parent(s) have enough funds to live out their life/lives comfortably, and say your inheritance will be in the $300,000 to $500,000 range, do you need to make your maximum RRSP contributions?

Other planning issues include whether you should purchase a home out of your price range or underfund your children’s education fund, knowing that you will receive an inheritance to pay off the mortgage or to pay off any education related loans. Alternatively, you may over fund your child’s education by sending them to a private school you would never had considered without knowledge or presumption of a future inheritance.

How you deal with debt could also be affected. If you have debt, should you just limit it to a manageable level and not concern yourself with paying it down? Or alternatively, should you pay it off because you can reallocate funds once committed to your RRSP, TFSA or RESP, knowing your inheritance will cover your RRSP, TFSA or RESP?

We have all heard about about the huge debt level many Canadians are carrying. Based on comments made by Benjamin Tal, deputy chief economist for the CIBC, one wonders if at least subconsciously some of this debt level in being carried because people know they have an inheritance coming? Mr.Tal in an article in the Toronto Star on Baby boomers set to inherit $1 trillion says "people talk about how much debt there is without looking at the size of the potential assets to come. Debt is relative to your income today, but your wealth tomorrow will improve when an inheritance comes."

So, have I seen people bank on an inheritance? Yes. To date, where I have observed such behaviour, the inheritances have come as expected. However, these cases may not be predictive of future cases.

Is it morbid to plan for an inheritance? Clearly, it is. Would most people rather have their parents instead of the inheritance? Yes. This topic is a very touchy subject and an extremely slippery slope, but to ignore the existence of a significant future inheritance that would impact your personal financial situation may be nonsensical.  However, if your financial planning takes into account a future inheritance, you should ensure you have discounted that amount to cover the various risks and variable that could curtail your inheritance and be extremely conservative in your planning.

Post script:

As the expression goes "Those who hesitate are lost". I started writing this blog back in late November, but could not come to a conclusion (if one can call the lukewarm recommendation I suggest above a conclusion) until recently on whether one should or should not plan for an inheritance. Thus, this blog post just sat. In the interim there have been two excellent articles on this topic. The first by Garry Marr of the Financial Post, titled Windfall no sure thing from which I quote Mr.Rechtshaffen above and another article by Preet Banerjee of the Globe and Mail, titled An inheritance should be a windfall, not a financial plan.

In Preet's article he notes the potential flaws of incorporating an inheritance into your financial plan. He also concludes with some words of wisdom "There are enough variables affecting your own financial success. Ideally, you shouldn’t bank on an inheritance in your financial plan, but rather treat it as an unexpected windfall. Most people would rather give it up in exchange for having their parents back".

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.