Latest / The Chiro Money Show / 030 | Should You Factor an Inheritance Into Your Financial Plan?
Transcript
- Chris: Welcome back to the Cairo Money Show, where we're helping chiropractors make better financial decisions so they can build stability in their finances and a lifestyle that they love. We're your hosts Chris Scheele and Scott Campbell, financial planners with Align Wealth. Scott: Chris, you were just locked out of your house for an hour. Chris: Yeah, was locked out and I guess for good reason maybe. Yeah, first ever showing of ⁓ house which is for sale. So very exciting time. Scott: tell the world what's going on. Yeah, ⁓ big changes coming up for your family. Chris: Yeah, big changes coming up. can share a little bit about that if any of our listeners care to hear. And it is kind of connected to what we're going to be talking about today. At least some of the reference material that we're going to refer to today. Yeah, we're making the big decision to relocate mostly for lifestyle reasons. ⁓ We want try living closer to the mountains before it's too late. Scott: Yep, for sure. And where you heading off to. Chris: We are headed off to Vernon, British Columbia. Yeah, so. Scott: BC, yeah, coming from the small town of Devon, Alberta. Chris: Yep, big change, big change. Scott: For sure, a big change. I love the intention that you've put into this decision, because you and your wife have been talking and discussing and dreaming about that possibility for a long time now, Considering it. Chris: Yeah, yeah, it's been a while. We've been considering it for a long time. I mean, the seed was probably planted long, like many, many years ago, but it's been interesting over the last year or so. kind of how we've navigated it. And actually I had a good friend ⁓ was asking me about that. like, how did you actually like finally get to the place where you could make the decision? I don't know, but we just didn't rush it. We just kept coming back to it, kept being open with our communication and just considering all the options and all the alternatives and what our life could look like for the years ahead. just kind of having that time. A lot of it was, you know, when we were on holidays in the fall there, we had a lot of time together, a lot of time driving. ⁓ we were talking about life a lot and ⁓ think coming back from that trip in ⁓ we ready to make the decision. So ⁓ here are. ⁓ Scott: Really cool, especially with two young kids and it's going to be a big change for them as well. But it's a very exciting, very exciting change. And the way I like that you're approaching it is like you're, selling your home and you're going to go to Vernon and you're considering renting for the first year or so. that gives you options, right. To kind of really test the waters of whether or not it's really for you and the family, Chris: Totally, options and flexibility. Just like we say with our clients, that's what we're aiming for. If for some reason we don't like it, well, we'll move on back. We know what life is like here. And if we do love it there, then we'll look to buy at some point. But ultimately, just excited to be in the mountains, ⁓ beautiful ⁓ skiing. don't ⁓ I'll have update our listeners on this, how many ski days I get in next year. Scott: Yeah. share. Chris: and with the kids. Yeah, exactly. Scott: Yeah, how many days on the lift? No doubt. So a few things. I think first of all, I'm sure the house is going to sell extremely quick with that blue wall behind you. That's a, that's a selling point for sure. And I imagine the blue wall is coming to Vernon as well, right? Chris: yeah. Yeah, yeah, come. Scott: hope so. It has to. It has to. Chris: It has to. It has to. Yeah. It's a little bit easier than moving a blue couch or something like that. So. Scott: For sure. Alright, can we start off the topic with this mind-blowing stat? Chris: Yeah. right. Enough about me. Yeah. Yeah, crazy, hey? So here's the stat. According to CPA Canada, there's about a trillion dollars in Canadian wealth that's expected to transfer from the Baby Boomer generation to their children between 2023 and 2026. Scott: wild. So a lot of that wealth has already been transferred if we're already in 2026, right? Chris: That's wild. Yeah, exactly. A lot of it's already underway. Not sure how accurately they can like forward project that number, but I'm sure they have their, their sources. Scott: Yeah. I'm sure, That's pretty wild to think about. That's a lot of money changing hands, Chris: . Yeah, for sure. so the question was posed ⁓ me and it was like, well, what should we do about this? If we know that inheritances are coming, I guess that the question we want to sit with today is like, should that change how we look at our finances? You know, if we know that we're likely to receive an inheritance, does that affect how much we're paying down our debt or saving and investing or our lifestyle decisions? So. ⁓ Scott: for sure. Chris: That's kind what we want to explore today. Scott: For sure. And we've had our fair share of navigating inheritances with clients, both that have received an inheritance to some degree, some quite large, some just nominal amounts, which still make an impact, as well as clients who are thinking or expecting that there's going to be an inheritance in their future. Chris: sure. Scott: that obviously is helpful when we're in the picture and we ask those questions and we can start kind of thinking about that and at least what we're to get into today like take it into consideration but not build an entire financial plan around that assumption either. Chris: For sure. I think that's, mean, jump, jump ahead to the conclusion, I think that's kind of the sound thing to do, Like the prudent thing to do. It's like, we can consider it. It might impact some of the decisions, but we shouldn't dramatically change our lives and expect and plan on receiving that inheritance. ⁓ having that change our life, right? Like we can't just have 20 or 30 years of poor financial decisions and expect that an inheritance is gonna fix everything. And even with that, like the number might not be enough, right? Like, so not everyone. Scott: sure. Yeah, we were talking about that. Chris: Well, let's just look at some numbers and some context here. So some more stats. So this study was done by CIBC Bank over the last decade. The average inheritance received by Canadians was $180,000. So decent amount, but like not also life changing amount. It's not like winning a million dollar lottery or something, but Scott: Wow. Chris: certainly it's going to have an impact. A couple of things to look at, a lot of that wealth or inheritance is primarily in real estate, specifically in BC and Ontario, where real estate values are mightily inflated. ⁓ So also interesting because that to on ⁓ Scott: Yep. Mm-hmm. Chris: inheritance might be limited based on where someone's living and their ability to move out of that place or desire to move out of that place. So for instance even if someone wanted to give their kids an inheritance but what if they don't want to leave their their primary residence, their house they've lived in for the last 30 years they might not be able to until something triggers that. Scott: Yeah. For sure. Not everyone ends up downsizing and they just stay in, are able to stay in their home because of good health. And yeah, a lot of factors that go into passing along real estate or if it's a second property, like a cabin or a cottage and things of that nature of, well, I'm sure, you know, that boomer generation is probably well known for having probably more secondary vacation type properties than the millennial gen X generation ahead of them. So those are being passed along. a lot of tax implications to be considered, to take into consideration there too. Chris: sure for sure yeah and then the other interesting thing is that with regards to estate planning nearly half of Canadians still don't have a will. Scott: That's that always blow of my mind. Chris: Mind-blowing, right? So that just means that this huge a good chunk of this wealth that's to transfer is doing so without clearly, you know planned out wishes the deceased person so it makes things messier ⁓ more for for their their children or ⁓ their and ⁓ often than ideal from what the the family expected or intended and Scott: Mm-hmm. Mm-hmm. Chris: And unfortunately also lead to lot of strain ⁓ the family. Scott: Yeah, for sure. For sure can. know, it's, it's, ⁓ we can come back to the topic of inheritances, but just, just on that topic of, ⁓ good planning, estate planning, getting a will in place and, ⁓ and forward thinking when it comes to these inheritances and ⁓ of that nature is, I think it's never been maybe more important for maybe the millennial Gen X generation to be having conversations with their parents. about what this is all going to look like. Are you working with a good planner? Your accountant? Do you have a lawyer? Is your will in place? I think it's probably fair to say that a lot of... lot of individuals in our generation, millennials, Gen X, would assume that their parents have things in good order, that they have a will and estate documents in place. And then next thing you know, maybe something happens and they're like, ⁓ my goodness, there wasn't a will in place. And I'm not sure what my parents' wishes were. And things are a bit of a mess and disorganized. And like you said, that can also add stress and strain amongst siblings and you name it. Chris: sure. Yeah, it can be a really tough, really tough situation, unfortunately. Because it's one of those things that people don't want to talk about. Right? So maybe maybe like, oh, Scott: Yeah. Yeah, and on either side of that situation, the parents might not want to talk about like talking about money as taboo and like we got it handled or it could just be also the younger generation not having the awareness and not knowing that they should be talking about it or just making the assumptions that it is handled by their parents. Chris: Yeah, for sure. Maybe that should be one of the takeaways for our listeners is have a conversation. Yeah. Scott: Yep, yep, could make a, it could make a world of difference in ⁓ impact and the outcome. Right? Obviously we're talking about at some point your parents passing along, but having a plan with good intention with their wishes, what they want to see happen with passing along in the state, it deserves the care and attention and good planning. Yep. Chris: Mm-hmm. For sure. for sure, for sure. right, let's walk through, ⁓ walk through this a little bit here. So we've established that the transfer is real. It's happening now. Many, many your parents are approaching later stages of their life where they're maybe downsizing or end of life conversations are happening. It's a, it is a, ⁓ one of biggest generational events ⁓ Canada has seen. And yeah. a lot of this wealth could be coming our way. So let's look at what we could do with that and some kind of around that. One thing actually I want to share before we do that is just look at stats of what is actually happening when people receive an ⁓ inheritance. And don't have a lot of data on this, but I was able to find a Sun Life study that ⁓ that asked people that did receive an inheritance what their plans were with it. And so that was interesting and insightful. this zeroed in on as well. the data showed that about 57 % of millennials who expect an inheritance were planning to put it towards retirement savings. So that sounds pretty reasonable. Sounds like. Scott: Yep. Mm-hmm. Chris: Pretty good option as the most likely outcome. that's pretty sweet. Further to that, 55 % say they would use it towards housing costs. So maybe paying down the mortgage, maybe getting into the market, whatever that looks like. And then 36 % were using it towards either paying down debt or some cash flow related. Scott: Yeah. Chris: ideas. Scott: makes me think too that when we think about, ⁓ maybe they're expecting an inheritance, they know something is coming. I'll for my future retirement when that money comes, ⁓ or I'm going to aggressively pay down my debts or my mortgage because I'll take of that business when the money comes. And sometimes it does, and that can be executed, but like we might get into, like circumstances do change. The amount of money that you think is coming may be significantly reduced for various reasons. Chris: Yeah, for sure. And I think this next point on timing furthers that concern of waiting for an inheritance. Because don't know when that's gonna come. Unless your parents have clearly laid that out for you, which, good them, ⁓ and willing to talk about it, awesome, but that's not likely the case. And so more realistically, what the case is, is that our parents will live on average to their mid 80s, maybe 90, early 90s, something like that. most of them will, well, half of them don't have a will. So that's probably when their wealth is going to be distributed ⁓ through their estate without a will. And ⁓ lot of people also are waiting then to... Scott: you Yeah. Chris: to pass on any inheritance as well. So if your parents lived till they're 85, how old would that make you Scott, when you receive that inheritance? If your mom lives till she's 85. Scott: Yeah, I'll be in my 60s, early 60s. Yeah. Chris: Yeah, interesting. Yeah, I would be similar. I would be, yeah, early 60s. So I don't know about you, but at that point, when I'm in my early 60s, I probably don't want to be in a position where I'm planning to have an inheritance, I would, I would hope. Scott: Mm-hmm. or relying on it to be part of your own retirement plan. Chris: No. I would hope that like, you know, there's no mortgage at that point. Mortgage is fully paid off. know, kids are already done school and post-secondary school likely at that point. retirement's already, should be already mostly funded at that point in your early 60s. Right? ⁓ Scott: Yeah. So the point you're probably thinking is like, it's not making much of an impact as what your parents probably thinking that it would like, ⁓ when I pass along, they're going to get whatever I have left. And that's a good thing. But the impact of that is not big as you might think because ⁓ they've done responsible planning and they set themselves up for retirement, like you said, their kids have moved out of the house and doing their own thing. Like, is the money, you know, a benefit? Sure. Chris: No. Scott: but to what degree, what kind of impact will it actually make on their life. Chris: Yeah. Yeah, for sure. I think this is like, this is the core argument for the book Daiwa Zero, which we've referenced before and which I kind of alluded to in the preamble today. That's ⁓ influenced a lot of my decision making around relocating, to live closer to the mountains. In this context, Die With Zero talks explicitly about Scott: Hmm. Chris: making an impact when you can. It's like not not until you pass away and then ⁓ an inheritance. if you want to leave a legacy Leave it now, as soon as you can, because the sooner that you get that money to that charitable organization, the sooner they can put it to work and can also see the impact of it, which is also very powerful. And likewise, if you're, talking about an inheritance that's being passed to your children. We've already established that at our early 60s, we hope to not need any inheritance. But I know for a lot of our listeners in there, maybe for in our mid 30s, and we probably could still have student loans, we might have a practice loan, or we might be looking at buying that practice, transitioning it from an associate to a practice owner. The impact that the money could have at that stage is 10X what it has in your 60. Scott: Mm-hmm. Yep. Especially when you may, you know, I think about those in a situation where they know their parents have a good deal of wealth, kind of getting to that area of like they have more money than they know what to do with, like their lifestyle needs are met, they're never gonna run out of money, they're very, very comfortable. At some point it's kind of inevitable that they can't spend it all. Some of it's gonna be coming down to the next generation. That's where it's almost even more powerful to have those conversations with your parents to be like, well, can we make an impact today that you can see that you can be part of it? That there's got to be some sort of measure of joy some sort of like it's fulfilling to see that impact while you're still alive for your kids, for your grandkids to maybe create more experiences or to do something special for a charitable organization that you're that that you're fond of. Like the list goes on. Chris: Alright, we don't need to beat that dead horse too much more, people are probably getting sick of us talking about Die With Zero. Scott: Yeah, well the last note on that is like when you also have ⁓ maybe parents that are not in that situation and like they have they have enough to live a comfortable life. Maybe they're not like extremely extremely wealthy, but they have enough and they're comfortable. But maybe if a parent that's in that that mindset where it's like they maybe they hold back on their life. because they feel like they ought to pass along inheritance and I'm not saying that's a wrong thing but I know if it were me talking to my mom it's like go live, live as much life as you can like kind of the die with zero thing that we're talking about here like go live it up like thoughtfully planned well planned out but like spend it all if you die with zero ideally that would be my hope for my mom at least Chris: That's a point. let's transition into ⁓ one of the concerns of kind of awaiting an inheritance. this kind concern or whatever you want to call it is ⁓ simply, call it this, the sandwiched generation. So speaking to people that are in this position where they're not only raising their own kids, but they're also having to care for their aging parents. So, they're maybe supporting multiple households that potentially having a very big impact ⁓ on finances. ⁓ So a lot of Canadians are paying out of pocket for their aging parents. Scott: for sure. ⁓ Chris: it's part of their monthly cash flow or monthly expenses or annual expenses that they are helping out their parents in some capacity. And it's also having an impact on their own financial goals, their own retirement goals. So that's going to influence future generations and their future inheritances if have aging parents that are relying on us in some capacity. Scott: Mm-hmm. Yeah. Chris: Then we add in the layer of like costs ⁓ maybe long-term care for individuals that can't, you know, need supportive living, some of assistance in their ⁓ later ⁓ You ⁓ the costs for that can be quite astronomical on a monthly basis. Scott: Yep. Mm-hmm. Yeah, they can be huge. Yeah, as much as we want to assume that our parents or if it's your parent that they may feel like they're going to have their good health forever and be able to stay in their principal residence forever, but that's not always the case. Things can change. Health can change, unfortunately. It's part of life and that can sometimes come with some significant costs. Chris: to kind of put it all together, Would you say our take? Our take Scott is to ⁓ kind factor it in, ⁓ consider it, but certainly not build plan around it. Scott: don't think we've ever built a plan around an inheritance. We've talked about it. There's it's ⁓ more so ⁓ if ⁓ when ⁓ inheritance comes, there's to be a big plan update, of course, ⁓ and we to build out your current plan, assuming that that's not factored in that, you know, basically we have the green light that we're on the right trajectory without that inheritance. And if that comes, then that's just a bonus. Chris: Yeah, I think ⁓ like I said in the start I think just it's the prudent thing to do right like we can't there's so many factors that we we cannot Come with an accurate ⁓ or assumption for right longevity If everybody knew the day they were gonna die ⁓ like planning would be so easy right, but we don't ⁓ and Canadians living longer and longer so Scott: Mm-hmm. Yeah. Chris: If your inheritance doesn't come until parents die, well, that money could arrive when you're 40, 50, 60, 65, 75, who knows, right? Then we factor in the long-term care costs, healthcare costs that can quickly erode an estate. We haven't talked about this yet, but family dynamics can change as well, right? So divorce, ⁓ remarried, you know. Scott: Yep. Chris: estate plans can change. Scott: Yep, yep, I think those are all the takeaways in terms of ⁓ potential risks ⁓ purely just banking on a large sum of money coming down the line to, I wouldn't say bail out, but like support or heavily support your retirement or pay down a mortgage or whatever the case might be. Chris: sure. Scott: Aside from that though, think the other big takeaway that I think is just as equally as important that we touched on just earlier is having that conversation. Chris: Well. Scott: Hopefully that's ⁓ thing in your relationship with your parents to able to have that open conversation That could maybe vary in terms of how detail you get into, but to at least understand that they have ⁓ a plan for their estate, that they have estate documents in ⁓ good order, that you understand what their wishes that can just go a long way just having ⁓ that conversation in itself. Chris: Yep, for sure. Well said. Scott: Yeah, I think we can wrap it there. just leave it off with we're just saying that once again. Appreciate all the all the listeners. Have you been enjoying the Chiro money show here for a while? please do us a big big solid and leave us a rating or review on whatever platform it is that you're listening to the Chiro money show be that YouTube or Spotify or Apple podcasts ⁓ Share with someone that you think would get some value from conversations like this Chris: also send in if you have any ideas any questions anything you want us to do an episode on send it in Scott: the way to do that if you'd like to do such. Go to thechiromoneyshow.ca right there on the home page as an opportunity for you to submit a question that we can put together here on a future show. Chris: Right on. Okay, thanks Scott. Scott: Thanks, Chris. We'll see you guys next week.