Planning your estate means asking yourself how much and how you want to leave an inheritance; allow yourself to start giving before your death while ensuring you have enough until the end; pay what you owe to the taxman, but no more; and take on part of the burden that will fall to our loved ones after we are gone.
François Dussault learned the value of saving at a very young age and was fortunate to have a career that provided him with a good income. When he retired, this Montrealer, now 75 years old, found that he had enough financial assets to maintain a comfortable lifestyle while devoting part of them to the creation of a trust whose returns would go to improving the living conditions of his children and grandchildren. Since then, he has been able to financially support the return to school of two of his older children and help pay for the private school, the speech therapist, the psychologist and educational trips for his grandchildren.
“The objective is not to pay less taxes, even if my grandchildren do not earn enough money to pay on what I give them,” explains the former pension fund manager. I just like being able to help them right away to find what will allow them to get by in life rather than making them wait until I die. »
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Created with the help of a tax specialist, his trust also has the advantage of setting clear and systematic aid rules, he says. “I don’t want my children to feel obliged, every time, to ask me, to justify themselves or to express their gratitude to me. It is not the goal. »
Quebec has entered into the largest intergenerational transfer of wealth in its history, economists say. Having benefited from favorable socio-economic circumstances, Quebecers aged 65 and over held a net worth totaling almost 1,000 billion at the end of 2023. Very unevenly distributed between rich and poor, this wealth will go, at least in part, to their loved ones.
The creation of trusts is one of the mechanisms they are increasingly resorting to, experts note. “It is not within the reach of everyone, a will can often be enough,” observes Julie Guay, financial planner. They are not really used to save taxes, but rather to allow donors to exercise some control over the sharing and use of their inheritance beyond their death. They can thus provide for the rules of priority and sharing in reconstituted families. A form of supervision can be established for minor children or a relative who is not considered capable or sufficiently responsible.
Deciding on the rules
“Unlike Europe, for example, there are very few rules regarding inheritance in Quebec,” explains Fabien Major, another financial planner. “We sometimes see some who give to causes that are close to their hearts, but this remains a minority. We give mainly to members of our immediate family. The circle isn’t much wider than that. »
You must first carefully assess your own financial needs and make sure you have enough until the end. “People tell us that they think they will live to be 75 while their parents are still alive at 90,” says Julie Guay. But in general, “baby boomers want to give, but without depriving themselves. People are particularly sensitive to health issues. They want to ensure that, if they ever lost their abilities, they would have the means to continue to live with dignity. »
In some cases, people are richer than they seem. Fabien Major cites the example of this couple of farmers who have always had a modest standard of living, but whose sale of the farm brought in 3.5 million.
But for the many others who will not be entitled to such surprises, it is a question of not making too many mistakes in your forecasts and planning, continues Mylène Lapointe, also a financial planner. “When you have $100,000 or $200,000 to leave, you can’t afford to make mistakes that would cost too much. »
Death and taxes
In particular, tax must be taken into account. Even if Quebec does not, strictly speaking, have an inheritance tax, it taxes, among other things, the capital gain realized on buildings which are not the main residence, on investments in the stock market and other assets financial. Roughly summarized, the exercise consists of acting as if, upon death, we sold all these assets at once so that the State could tax the profits thus made before allowing the heirs to share the rest.
This operation can pose a problem for those who would inherit, for example, a family chalet whose value has increased considerably over the years, says Julie Guay. “This can become very annoying for those who do not want to sell this chalet, but who also do not have the necessary liquidity to pay the capital gains tax. » In this case, we recommend that donors also consider leaving money (inheritance assets) to pay the tax bill or all other costs related to the inheritance.
“We must not forget that one of our important heirs will be the government,” says Julie Guay.
Dealing with clients who have at least $1 million to invest, Fabien Major assures that these people are not trying to trick the tax authorities. Only “to pay their fair share, no more”. “But tax rules are Russian dolls. We very often see cases of double and even triple taxation. »
Message to heirs
While it is important to think about how you intend to leave your assets, it is also prudent not to count on an inheritance in your own financial planning, notes Mylène Lapointe. “I see a lot of people who expect their entire life to receive an inheritance. It’s very dangerous. We can rarely be sure how much money we will be left with, or even if we will receive any. This can seriously complicate your own retirement situation. »
In general, estate planning provides a valuable opportunity to lay the groundwork with loved ones, financial planners insist. “We don’t do it just for financial reasons. It’s also a way of expressing affection,” observes Fabien Major.
“Parents often avoid talking about it because they don’t want any arguments. But this is precisely what risks happening if we put our heads in the sand,” says Julie Guay.
“In Quebec, we know it well, we don’t like to talk about our salary or placement,” adds Mylène Lapointe. But it’s important to talk to your loved ones about how you see your inheritance, because when it’s not clear, it can quickly become very complicated and even hellish. Putting our affairs in order is a way of doing part of the work to make life easier for those we love and who will have to take care of them after we are gone. »