Strategies for Multi-Generational Planning

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The Sandwich Generation was a term coined by Dorothy Miller in 1981 to describe adult children who were “sandwiched” between their aging parents and their own maturing children. There is even a term for those of us who are in our 50’s or 60’s with elderly parents, adult children and grandchildren – the Club Sandwich. More recently, the Boomerang Generation (the estimated 29% of adults ranging in ages 25 to 34, who live with their parents), are adding to the financial pressures as Boomers head into retirement.

It is estimated that by 2026, 1 in 5 Canadians will be older than 65. This means fewer adults to both fund and provide for elder care. Today, it is likely that the average married couple will have more living parents than they do children.

What are the challenges?

The truth is that many members of the Sandwich Generation find the circumstances are both emotionally and financially draining. In the past, women have been looked upon to provide the primary care giving in the home while men take care of the income needs. Today, roles have changed with the majority of working age women employed outside of the home. As a result, financially, both parents are looked upon to provide for the family. For The Sandwich Generation helping their parents and their children at the same time, creates stress that can affect both their mental and physical health.

Risk Management in the Sandwich Generation

Having an effective financial plan becomes key in dealing with the challenges. As the main breadwinner in this situation, it is possible that three generations are dependent upon you. One of the first issues to be addressed then is how you protect your revenue stream.

Steps to Minimize risk for the Sandwich Generation

  1. Have an open and clear discussion about family resources and needs – The older generation needs to have a discussion with their children so that everyone knows what steps have or have not been taken to provide for the senior’s care when they are no longer able to care for themselves. This would also be a good time to initiate or continue any talk about what liquidity needs exist for taxes, long term care, funeral costs and last expenses etc.
  2. Complete a life insurance needs analysis – Where there is not sufficient capital to continue family and dependent’s income at the death of a breadwinner, life insurance can provide the necessary funds required to maintain lifestyle, pay debt, reduce mortgages, fund children’s education and provide money for aging parent’s care. Life insurance is an affordable way to guarantee future security.
  3. Review your disability and critical illness coverage – If there is not sufficient income that will continue to be paid should you become unable to work due to sickness or accident, consider long term disability coverage. Critical illness insurance will provide needed capital in the event of diagnosis of a life-threatening illness or condition. Not only will this provide financial support but will also improve your chances of recovery without the financial stress that often accompanies such a condition.

  4. Investigate Long Term Care Insurance     – Having the appropriate amount of LTC insurance will help to reduce the stress of having to care for a parent when they are no longer able to fully care for themselves. Consider having all the siblings share the cost.
  5. Draft a Living Will or similar Representation Agreement – Making your wishes known to your loved ones in the event you are no longer capable of making medical decisions will go a long way to providing comfort to all concerned when difficult choices need to be made.

As you can see, being part of the Sandwich Generation can be very stressful – emotionally and financially. Having someone to talk to or being part of a support group dealing with this issue, will certainly help manage the emotional challenges.

Let’s connect soon to discuss what strategies you may need to implement to provide the financial security your family needs.

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Preparing Your Heirs for Wealth

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If you think your heirs are not quite old enough or prepared enough to discuss the wealth they will inherit on your death, you’re not alone. Unfortunately, this way of thinking can leave your beneficiaries in a decision-making vacuum: an unnecessary predicament which can be avoided by facing your own mortality and creating a plan.

Avoiding the subject of your own mortality can also be an extremely costly to those you leave behind.

If you have a will in place you are ahead of the game. However, authors of the 2017 Wealth Transfer Report from RBC Wealth Management point out that a will is only a fundamental first step, not a comprehensive plan.

“One generation’s success at building wealth does not ensure the next generation’s ability to manage wealth responsibly, or provide effective stewardship for the future,” they write. “Knowing the value (alone) does little to prepare inheritors for managing the considerable responsibilities of wealth.” Overall, the report’s authors say the number of inheritors who’ve been prepared hovers at just one in three.

Two thirds of the survey’s respondents say their own wealth transfer plans aren’t fully developed – a critical barrier to having this discussion in the first place.

While the report focuses on wealthier beneficiaries in society, the lessons remain true for most: to make the best decisions about your wealth transfer, there needs to be planning and communication with your heirs.

1. Recognize that action today can help you create a better future

First, it’s important to acknowledge that creating an estate plan means contemplating your own death – an inescapable element of the process. It can also involve some awkward conversations, particularly if you’re not in the habit of talking about money with family and loved ones.

Without planning the outcome you leave may not be the one you would choose:

“Despite their efforts, parents don’t always succeed in translating good intentions into effective actions. They tend to resort to the informal, in-house learning methods they received in childhood,” say the RBC report’s authors. “Without intending to, parents repeat the lessons that contributed to the weaknesses of their own financial education. In the end, they are not equipping the next generation with the right skills to build lasting legacies.”

2. Understand the tax implications early.

To many, the taxes due on death will almost certainly come as a shock. In many cases, the single largest tax bill you will pay could be the one that your executor handles for you.

In Canada, leaving your assets to your spouse will defer these taxes until he or she disposes of the property or dies. However, if a spouse is not inheriting your assets and real property, planning for this “deemed disposition” is needed to allow your heirs time to make appropriate decisions about your property and legacy.

You may want to consider strategies that will greatly reduce the impact of the taxes to your estate. These strategies could include the use of joint last to die life insurance.

To illustrate how the growth in value of property can result in taxes payable at death, consider an asset which many Canadians own and enjoy – the family cottage.

Recreational real estate in many cases has “been in the family for years.” It often will have appreciated in value significantly since its purchase. Say you purchased the family cottage for $100,000. If the property is now worth $500,000, half of that gain – $200,000 is added to your income and taxed as such in the year you die. That will result in a tax bill of approximately $100,000.

If your family does not have the liquid funds available to pay this bill, the cottage or some other asset will need to be sold to pay the Canada Revenue Agency. Purchasing life insurance to pay the taxes due at death is one way to bequeath the family cottage to heirs. This will allow your children to continue to enjoy the property without having to raise the money to pay the taxes.

All capital property – except your principal residence and investments held as a Tax-Free Savings Account – is dealt with in a similar manner. If your stocks, real property, and other assets have appreciated in value since you first purchased them, half of that amount will be added to your taxable income in the year you die. If your assets included commercial or rental property against which the Capital Cost Allowance has been claimed, there may also be a recapture of depreciation. Again, deferral is available when assets are left to a spouse but if they are left directly to children or other heirs, the taxes become payable when you die.

As if this is not bad enough, the full value of your RRSPs or your RRIF must also be deregistered and included on your final tax return if the RRSP or RRIF is not left to a surviving spouse.

3. Get help to build your plan, then share it with those who matter.

Estate planning typically isn’t a “do-it-yourself” project. Instead, you’ll probably need to rely on a network of professional advisors who can bring their expertise to different parts of your plan.

Once you have your plan in place, it’s time to ensure that the people who are impacted by it are aware of your wishes.

Members of your professional network can help explain your plan to beneficiaries and help those who inherit your assets to understand your preferences and the decisions you’ve made.

Let’s get together to review or create your wealth transfer plans and discuss how you can get assistance in communicating those plans to the people who matter the most.

As always, please feel free to share this article with anyone you think would find it of value.