Baby boomers may not be feeling well off right now, given the recent rout in stock markets, but when you tally up the property, investments and other assets the retirement-age generation has amassed, it's a lot of riches.
Statistics Canada says the average wealth of Canadian families (total value of assets minus outstanding debt) rose by 73 per cent between 1999 and 2012, to $554,100. That number climbed to $589,511 at the end of 2014, according to Environics Analytics. More than $30-trillion in financial and non-financial assets is expected to pass from baby boomers to their heirs in North America over the next 30 to 40 years, according to an estimate from consulting firm Accenture.
The problem aging parents face is how to evenly distribute that wealth to their kids, without starting a family feud.
It's the unexpected transfer of assets – everything from money to family heirlooms – that "rips families apart," says Gary Brent, chairman and co-founder of HighView Financial Group in Toronto.
"It's better to prepare them for the money that is coming," Mr. Brent says. "When the will is read, nobody in the room should be surprised."
Mr. Brent says the best way that parents can sort out who gets what – and when – from an estate is to start having the conversation with their children when they're mature enough to handle it. Parents should also have a detailed will and estate plan to discuss, and find out whether their offspring actually want the art, cottage or other assets they plan to leave them.
Too often, Mr. Brent says, parents prefer to keep the contents of their wills a secret, either because they believe it's impolite to talk about money, or they don't want their children to know the extent of their wealth, worried they may not work as hard.
"It's about having an open dialogue and treating your kids respectfully so they understand what you're trying to accomplish. They may surprise you to the good on how they relate," Mr. Brent says. "If you leave it, it can become a very muddy and messy situation for a family. I've seen it, literally, over something as silly as a cottage."
Cottage a hotly contested asset
Recreational properties carry a lot of emotional baggage within families, says John Budd, a partner with Toronto-based Cumberland Private Wealth Management Inc. and co-author of The Canadian Guide to Will and Estate Planning.
"Parents generally have the dream of passing the cottage down to their children, but in many cases that dream can become a nightmare," he says.
Janet Sim, a Toronto-based partner in the trust and estates group at law firm Osler Hoskin & Harcourt LLP, says that recreational properties usually cause the most grief for parents trying to figure out how to split their assets fairly and equally.
What if there are three children and just two are interested in owning the family cottage? How is the third one compensated? Ms. Sim says options for parents can include selling the cottage before death and distributing the money among the children, leaving the cottage to the children in the will and having them sort it out, or finding out which of them want to keep it and leaving the others assets of equal value.
Each option can be tricky, though. Ms. Sim says parents need to consider whether the children who want the cottage can afford the upkeep, including taxes and other expenses such as maintenance and repairs. Selling or transferring the cottage can also incur capital gains taxes for either the parents or children, depending on when it's sold and whether it can be classified as a primary residence.
Another major consideration is what happens if one or more of the children owning the cottage is married, and then gets divorced. Under family law in Ontario and many other provinces, the ex-spouse could have a claim to half the value of their spouse's interest in the property if it's considered a matrimonial home. In some cases, that could force a sale of the cottage, Ms. Sim says.
"That is where you can certainly have some issues," she says, especially if the ownership of the property is being shared with other siblings and their families.
To reduce the risk, Ms. Sim says parents can ask their married children to draw up a legal contract with their spouses saying the cottage – or ski cabin or other recreational property a child may inherit – will not be considered a matrimonial home.
Don't give it away too soon
Often parents will transfer assets, either money or property, to children while they're still alive. It's a nice gesture, but Mr. Budd warns that Canadians are living longer and could need to stretch their money further in retirement.
As seniors get older, their living costs can increase, especially if they become ill and need to move into a care home.
"It can be dangerous sometimes to give up the ownership of valuable assets to your children," Mr. Budd says. "It might be more prudent to hold on to it" and be sure you have enough to fund your own retirement first.