A significant shift is happening in the world of wealth and assets. This shift, known as the great wealth transfer, changes who controls wealth and how it’s passed down to the next generation.
Understanding this change is essential, especially if you’ve built up a nest egg or have a family and want to start estate planning. Here, we’ll explore what this wealth transfer means, why it’s happening now, and how to prepare for it.
What is the great wealth transfer?
This great wealth transfer is based on the large movement of money and assets from generation to generation. In Canada, baby boomers (born between 1946 and 1964) pass on their wealth to their adult children and grandchildren (Gen Zers and eventually Gen Alpha).
By 2026, it’s expected that $1 trillion will be transferred from baby boomers to Gen Xers and millennials. This is the largest wealth transfer of its kind in Canadian history.
Pre-transfer of wealth impacts on young adults
Since the global pandemic, we’ve seen the impacts on parents gifting money to their older children. In particular, millennial households saw their net worth increase 82% on average, compared to 30% across all generations, between Q1 of 2020 and Q1 of 2024, according to a study by Statistics Canada.
There’s been a pre-transfer of wealth, which I don’t suspect has happened as much in previous generations.”
Dylan Wilson, portfolio manager at Verecan Capital Management
Why is the wealth transfer trend happening now?
Several key factors are driving this monumental shift:
- Aging population: Baby boomers who are growing older will eventually pass away. When this happens, their assets will transfer to their spouses and children.
- Longer life expectancy of women: Women tend to outlive men, so they will be the primary beneficiaries of this wealth transfer. When the husband passes away, his assets typically go to his wife.
- Horizontal wealth transfer: This is the shift of wealth from male spouses to female spouses. This is important because the decision-making power changes hands. We will see women controlling nearly $4 trillion in assets by 2028 in Canada, according to a CIBC World Markets report.
- Giving while living: Many more seniors are giving their money and assets while alive. This may reduce tax burdens when you pass on. Also, you enjoy watching your children or grandchild benefiting from your wealth. For instance, helping pay for a grandchild’s education or lending a helping hand in a down payment or mortgage payments for a house can benefit younger families striving to reach these goals.
What’s different about this current generational wealth transfer?
Many trends that are making this wealth transfer quite remarkable. Here are the most notable factors:
Families are focusing on estate planning
More people are carefully planning their estates. This helps to minimize taxes and manage their assets better. Estate planning involves deciding how your money and property will be distributed after you’re gone. This helps reduce estate tax and other costs, ensuring more wealth goes to your family instead of the government.
Women are learning about financial literacy
In the past, men have been the main financial decision-makers. Yet, with the wealth transfer, many women are becoming more involved with their family’s finances. What’s interesting to see is that within a year of their spouse’s death, 70% of women switch to a new financial institution.
Alternative investments are becoming popular
Beyond stocks and bonds, there’s interest in alternative investments such as real estate or private equity. These investments may offer higher returns but also have higher risks. Understand the level of risk you’re willing to take for effective wealth management.
How can you prepare for a wealth transfer?
Here are the six steps you can take to prepare for the great wealth transfer:
Step 1: Learn about financial literacy
Take the steps to learn about financial planning, tax planning, and estate administration tax. Many resources and tools are available, such as webinars, workshops and online calculators.
Step 2: Consult with a financial expert
A financial advisor can customize a financial plan to suit your needs. They can walk you through estate planning, making investment choices, and managing your assets. Building a relationship with a trusted advisor will take time as you prepare to pass on your wealth.
Step 3: Make an estate plan
Estate planning involves deciding how your assets will be divided amongst your heirs. You should consider writing a will, setting up trusts, and understanding the possible impact of estate tax. You may want to talk to a lawyer specializing in estate planning who can help you tackle these complex issues.
Step 4: Share your plans with family members
A survey by IPC Private Wealth revealed that 58% had not discussed instructions for their estate with their heirs. Communication with family members is key when it comes to estate planning. Discuss your financial plans and how you wish to distribute your assets. This can prevent misunderstandings and conflicts down the road.
Step 5: Get healthcare and life insurance
Healthcare and life insurance can offer you and your loved ones financial security. Life insurance can help preserve your estate’s value. Moreover, health insurance can cover medical costs, which is crucial for aging adults.
Step 6: Understand market trends
Staying up-to-date with changes in the financial markets and investment strategies is essential. For example, understanding trends in the stock market, housing market and alternative investments may help you be better positioned to take advantage of these trends.
Passing on prosperity for future generations
The generational wealth transfer is a big event that will shape the financial landscape for many years. For middle-class women and families, preparing for this wealth transfer is vital. As McKinsey & Company notes, “After years of playing second fiddle to men, women are poised to take centre stage.”
You can learn to prepare for this transition by working with financial professionals. Further, consider having conversations with your family. This will help ensure a smooth transition that will allow both you and your loved ones to enjoy your wealth while still supporting your retirement savings goals.
If debt has your retirement wealth plans on hold, our credit counsellors are here to help. They’ll help you get on the path to debt-free living so you can focus on your, and your children’s, future.
