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Vancouver, B.C. (December
18, 2000): North American baby boomers
are set to inherit an estimated $11 trillion over
the next 10 to 20 years, made up mostly of their
parents' homes, summer cottages, rental properties,
stocks, bonds, mutual funds and small businesses.
In Canada, that number is estimated at $1 trillion,
a windfall of sorts that could prove to be a boon
or bust for aging boomers.
“Receiving an inheritance is
a little like winning the lottery, and we've all
heard the horror stories of someone who squanders
it all in a year or two,” says investment
counsel and financial advisor Adrian Mastracci
of Vancouver based KCM Wealth Management.
“The key to any inheritance is how those
new assets are allocated. Everyone will have their
own personal preferences, and you always have
to make sure you've taken into account the specific
wishes of the person who made the bequest.”
Mastracci's suggestions on dealing
with an inheritance windfall:
- Treat yourself to something special. Most
family members do not leave many directions
about how the money should be allocated. Instead,
they simply want the funds to benefit their
family, or make life more enjoyable for their
children. So, "splurging" on a dream vacation
is not out of the question.
- Share some of the wealth. Do something special
and unexpected for a family member or friend
who is less fortunate.
- Do unto others. Consider a charitable contribution
for a cause that you believe in.
- Don't rush. Park the remaining inheritance
for at least 45 to 90 days before you make any
other allocations. Give yourself sufficient
time to explore alternatives and options.
- Get some professional help if required. Design
your long-term game plan, one that charts your
chosen path. It's a little like building a house.
First, you need to create the financial blueprint,
and then you can carry on with confidence.
- Review your own will with this new windfall
in mind. Keep in mind the wishes you've made
about your own estate.
- Put a little something away for an emergency.
Establish or top up an existing emergency fund
now that you have some room to maneuver. This
may include four to six months of ready cash,
just in case you lose your job.
- Pay the bills. Pay off the highest cost loan,
mortgage and line of credit where the interest
is not deductible. Then, redirect those former
payments to your long-term investment plan.
- Don't forget the future. Make your RRSP contributions,
perhaps even using any available RRSP capacity
that's been carried forward.
- Keep the kids in school. Start or continue
a RESP (Registered Education Savings Program)
for your children, giving them a head start
on paying for a higher education.
- Allocate the remainder of the inherited assets
into your long-term investment plan for that
retirement goal.
“In a nutshell, take the time
that's needed to consider your current circumstances,
and how you want to fare in the future,”
added Mastracci.
“Too often, people make quick
and perhaps disastrous decisions about this new-found
wealth, only to regret it later. The results can
be tragic as one generation's entire life's work
is squandered by the next generation, sometimes
in just a few months.”
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