This blog was written by Alex Fournier
The Trust industry has shifted its focus towards servicing the biggest market segment yet to be seen – the Baby Boomers. With the biggest intergenerational wealth transfer coming, it is the most logical course of action to undertake. In Canada alone, reports speculate that a staggering $1.1 trillion worth of assets will be passed on to numerous generations over the next decade. Although Millennials are the most educated generation in history, the average hourly pay for a full-time employee has only slightly increased since the day their parents entered the labor force. Furthermore, the cost of education has almost doubled since the 1970’s and the value of houses are significantly increasing. Even though owning real estate is forced savings, any new homeowner will quickly admit that it also means forced expenditures.
As a Trust Officer in Montreal, I have noticed a gap in assisting families with their planning needs. For my blog post, I wanted to focus on how we can help clients protect wealth for many generations to come. In other words, we should shift our focus to include Millennials, the next generation, in the preparation of legacy plans for their Baby Boomer parents. Bank studies have shown that only 2% of the children remain with the same financial institution that their parents dealt with if no relationship was built prior to their passing.
Estate Planners should not underestimate the benefits of a Trust when discussing legacy planning with clients as the level of debt continues to rise with Millennials when compared to previous generations. Trusts are an extremely versatile tool and great financial vehicle to help protect capital and span for generations. The settlor can decide the outflow of money to ensure that the capital will be maintained while the revenue beneficiaries benefit from a constant stream of revenue when the funds are properly invested. In Quebec, a Trust can help protect the patrimony from divorces, lawsuits and other potential misfortunes that beneficiaries may face. An Inter-Vivos Trust (or Living Trust) may also be a beneficial tool to use as it may reduce executor fees as well as probate tax as the assets will pass outside of the estate.
Mandates in Case of Incapacity (Protective Mandates)
As science advances and new technologies are discovered, the average life expectancy has significantly increased when compared to previous generations. Millennials will be accountable to take care of the biggest demographic – the Baby Boomers. As such, a Mandate in Case of Incapacity is at the forefront of any legacy plan. Appointing the right person to be either Mandatary to the Person or Mandatary to the Assets is of the utmost importance. Estate Planners should make it a point to discuss the responsibilities of each role and to make sure it is understood what is expected of them. As previously stated, Millennials are already burdened with higher debt, thus a good financial plan will also be key in order to avoid adding any unnecessary stress to an already frustrating situation. Personal Office services can also be considered an interesting alternative to young entrepreneurs or professionals who would want a team of specialists to manage their parents’ finances in order to alleviate the workload from having to take care of a parent or close relative and balancing a career and family life.
It is no secret that Millennials are the most tech-savvy generation out there today and are helping their parents become more and more technology literate. With Financial Institutions pushing online banking and paperless statements, settling estates in the future will be increasingly difficult. From closing a Facebook page or cancelling a Netflix subscription to finding the password to the deceased’s email address, storing this information in an accessible location can ease the process. Estate Planners should make it a point to speak with the Millennials about their parents’ online footprint as the older generation might neglect to mention it during the Legacy Planning phase or even fail to realize its importance. With all of the privacy leaks that occurred these past few years, it will be vital for any executor (liquidator) to close all outstanding accounts, no matter how trivial it may seem.
When it comes to donating, nobody can beat the Baby Boomers. According to StatsCan, approximately 87% of Baby Boomers donate to charities whereas only 48% of Millennials do. It is not because Millennials do not share the same empathy as their parents, but rather they do not have the means to do so. When Estate Planners have that initial conversation with the client about giving back to the community, a good practice would be to create their own charity as numerous Trust companies offer that service. Not only does it immortalize the founder’s charitable cause, but the children can be involved in the process by either helping pick out the charities to donate to or be appointed on the foundation’s committee and decide how much each charity will receive on a yearly basis.