When planning to pass down your wealth, the first question to ask is, when?

Traditionally, wealth transfer conversations happened between individuals and their advisors, with family members often learning the details after that person passed. But Mr. Golombek says there's a growing trend of parents planning their legacy with their adult children, a break from the dated taboo of avoiding talking about familial wealth. It's a positive change for younger generations, he adds. 

“We've seen situations where all of a sudden the kids inherit and they're completely unprepared and they don't know what to do with the money,” he says. “I think those people might be more prepared if they’re brought into the conversation earlier.”

Mr. Golombek recalls a situation where a parent died and left substantial wealth to their adult child from the sale of a private company. The parents hadn't involved their child in any planning conversations, and he ended up dropping out of school and living off the wealth. 

“The money was disappearing, and it was very unfortunate,” Mr. Golombek says.

There are tools that the parents could have used to help their son use the funds more responsibly, he notes. They could have set up a trust so that a portion of the funds could only be spent on things like housing, food or education. “Instead of the child getting all the inheritance on day one, the money goes into a trust and can be distributed for specific needs in future years.”

Regardless of how much wealth you plan to leave the next generation, Mr. Golombek says that most clients do worry, to some extent, if they’re going to be able to preserve that wealth going forward. Clients also worry that they will run out of money in their later years, and express concern about logistical issues such as navigating taxes payable upon death and provincial probate fees.

These are all valid concerns, says Mr. Golombek, highlighting the importance of having a financial plan that considers all aspects of the estate for both individuals and their heirs. 

“The good news is that we can help people with that.”

Through a relationship with an advisor, families can develop a comprehensive financial plan that looks at their income, assets and expenses and compares it to their lifestyle needs in retirement. "For example, look at the type of retirement residence you might need. Or if you think you will want full-time care at home, what will that cost?" says Mr. Golombek.

If a client decides they want to gift some funds to family members while they are alive, careful planning will help them understand whether they can afford to give away money now. Then, it's a matter of figuring out how they want to distribute the funds.

"Maybe you could help out [your kids or grandkids] on an annual basis, giving them a certain amount of money every year to help them with childcare expenses, to help them fund their RESPs and to top up their tax-free savings accounts (TFSAs)," Mr. Golombek says. Another option could be helping them save for their first home by giving them funds to contribute to a First Home Savings Account (FHSA). 

"These are all opportunities where the parents are fully maxed out with their own RRSPs and TFSAs. After all, by giving while you’re alive, you get to see the kids enjoy this wealth!”

For clients who decide that they would rather transfer their wealth after they pass, there are strategies to maximize that wealth for themselves and their loved ones, he adds.

One is permanent life insurance. “It allows you to invest tax-free as no tax is paid on investment growth inside the policy, and on death, the entire death benefit gets paid out tax-free,” Mr. Golombek says. “So there’s no income tax and if you name a beneficiary, there’s no probate fees.”

Another strategy is investing a portion of the family wealth in a prescribed life annuity, an insurance product that pays a regular monthly amount for the rest of their life. “When done with non-registered money, this can be very tax-effective.”

On the philanthropy side, Mr. Golombek says he often encounters clients who want to give some money to charity but aren't sure where to begin. One option is to use a donor advised fund (DAF) offered by many public foundations. The DAF can hold the wealth and distribute it to the donor's favourite charities. 

Mr. Golombek says it can be a tax-effective way to gift. “For example, if you contribute appreciated securities – such as Apple shares that have gone up in value – into the foundation, there's no capital gains tax on the appreciation,” he says. “And, you get a donation receipt for the fair value, which can save you up to 50 per cent tax through the federal and provincial donation tax credits.”

A DAF can be an effective way to bridge the gap between generations and involve the next generation in decisions surrounding wealth, Mr. Golombek adds.

Whatever strategies they opt for, planning early offers clients the chance to start the conversation with the next generation. From there, it’s a question of how much to transfer and how to do so tax-effectively.

“You can’t do it on your own and there are a lot of professionals out there willing to help you,” he says. “Ultimately, it comes down to your values and philosophy, but waiting to plan is rarely the most tax-effective way.”