10/20/2015 12:24 EDT | Updated 10/20/2016 05:12 EDT

Things for Baby Boomers to Consider When Estate Planning

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As a large majority of baby boomers begin to approach retirement age, there are some important considerations that should be made with regard to estate planning. Many established an estate plan years ago, perhaps when their children were born or when they bought their first home. However, as we get older, our priorities shift and relationships change. This is why it is important to take the time to periodically re-evaluate an estate plan that is already in place and make changes as needed.

An estate plan should ideally be revisited every five to seven years at an absolute maximum; however, there are life events that may precipitate doing so sooner. For instance, second marriages are becoming increasingly common. In this event, a testator may want to make provision for a new spouse while balancing the desire to also provide for adult children from a first marriage. The birth of grandchildren is another major life event that may require an estate plan to be altered. Also, as we all know, life does not always go according to plan. When planning for the disposition of an estate, most people typically imagine that the younger generation will survive the older one. However, in the unfortunate circumstance that a death occurs out of this natural order, the estate plan should be updated to address the new reality.

With baby boomers set to inherit the biggest intergenerational transfer of wealth in Canadian history themselves, there is a tremendous amount of wealth to be passed on. Given that many will have estates of significant value, lifetime gifting is another option that may make sense. This is an option that should be discussed with an advisor but if there are sufficient assets to allow the distribution of some prior to death, it can be beneficial. Some of the ways this can be done include outright gifting, charitable gifting, and even establishing a charitable foundation. Not only can this possibly provide a tax benefit, but it can be a rewarding experience for the benefactor to be able to see the positive results of the gift during his or her lifetime.

These forms of lifetime gifting are becoming increasingly common. This is primarily due to the fact that a large number of baby boomers can afford it. Given the wealth that many baby boomers are accumulating, they are becoming more likely to find themselves in a position to distribute some of it now rather than later.

There are also challenges surrounding managing the expectations of those set to inherit. With more than half of Canadians expecting a windfall inheritance at some point in their lives, it is likely that many will be disappointed with the harsh reality. Often, the children have grossly inflated expectations about their inheritance or are surprised to learn of debts that will significantly reduce the value of a parent's estate. This is why it is so important to sit down as a family and discuss your estate plans. Using an advisor to accomplish this can be especially useful in providing a neutral third party as a buffer in what can sometimes be an emotionally charged conversation. While some may prefer to delay discussing estate plans as they involve contemplating one’s own mortality, this carries a risk. The fallout from unrealistic expectations can all too often lead to disastrous financial consequences, litigation against an estate, and irreparable family rifts.

Another important issue for baby boomers to consider as they age is whether they have adequately planned for their own declining health. We’ve all heard the term the “sandwich generation” as referring to those caught between simultaneously caring for their own young children and their aging parents. However, the reality is that reliance on your adult children to step up and assist with your care as you age can be just as detrimental as their reliance on an inheritance from you.

Sadly, many adult children of baby boomers are simply not ready for this transition yet. The mentality still tends to be more focused on receiving rather than making provisions for their parents. This means that a comprehensive estate plan should be sure to address future health care needs without relying on any preconceived assumptions that the children will be providing financial assistance.

Baby boomers are in a unique position with respect to the potential to be leaving behind estates of significant value. As a result of the previous generation's frugal lifestyles, which were often heavily focused on saving, they are set to reap the benefits in the near future. Combined with their own career-driven attitudes, many boomers have accumulated significant wealth. While this has led to more estate planning options than ever before, it has also meant inflated expectations that should be appropriately managed as early on as possible.


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