Over half of Canadians plan to transfer their wealth to the next generation

A recent CIBC poll finds that over half of Canadians (51 per cent) expect to leave assets upon their death, but when it comes to having conversations about transferring their wealth, many say they have not discussed it with their family or a financial advisor.

Key findings of the poll include:
51 per cent of Canadians expect to transfer wealth, but almost half (47 per cent) have not discussed the inheritance with the recipients
79 per cent have not discussed the financial and tax implications of an inheritance with a financial advisor

Lack of communication about wealth transfer creating gap between generations

“Without the right amount of communication, Canadians run the risk of the next generation not being prepared to manage their inheritance”, says Sarah Widmeyer, Managing Director and Head of Wealth Advisory Services, CIBC. “To help bridge the gap, families need to become comfortable having conversations about wealth transfer.”

“There is a clear disconnect between generations when it comes to wealth transfer, and this can have a lasting impact on family legacies,” she says. “Without open, honest communication, family’s risk significant conflict, especially when parents’ wishes don’t align with their children’s.”

Key areas where there may be conflict within families who don’t communicate about wealth transfer:

Transfer of the family cottage: Parents may expect the cottage to be used for many generations, but their children may feel differently. This could result in lost planning opportunities for the property while the parents are alive.

Inheritance: Parents who want to protect their wealth for their children or grandchildren through the use of trusts may be concerned that their children could perceive it as not trusting their judgement.

Charitable gifting: Parents may look to reduce taxes at death through charitable gifting, but their children may not agree with or understand the benefits.

Probate: Parents may want to make children joint on investment or bank accounts to avoid probate, but may not realize it could potentially cause conflict among the children and limits estate planning strategies that could be leveraged.

Successful transfer of wealth threatened by insufficient planning

While discussions between generations are lacking, so is communication with financial and other professional advisors, including lawyers and accountants.

“While many estate planning strategies may help you achieve your objectives, all successful plans start with open conversations between spouses, professional advisors and, ultimately, family members to provide clarity and a vision for your legacy,” says Lana Robinson, Executive Director, CIBC Wealth Advisory Services.
“It is key to work with an advisor who can objectively help you understand what strategies are best for you, and can also provide advice on how and when to communicate the plan to your family.”

For those leaving an inheritance, Ms. Robinson stresses the importance of diligent estate planning with a team of professional advisors. “There can be significant complications for loved ones if arrangements for a wealth transfer are not properly managed,” she says. “Open communication with your advisors is critical. Strategies viewed in isolation, without the full picture of your situation, could cause unintended consequences.”

The following steps can help you start to develop a wealth transfer plan:

Discuss with your spouse or partner how you want your wealth to benefit the people you care about. What are your values? What are your goals? Are there areas where you disagree?

Think about who in your life may require special financial considerations, such as someone with a disability.

Complete an inventory of your estate, itemizing assets such as your house, cottage, car, investments, and insurance.

Initiate conversations about your intentions with your professional advisors to develop a plan.

Communicate your plans to your family and engage their feedback. Ensure your family has been introduced to your advisory team before difficult times arise.



40 per cent of Canadians say summer is the most expensive season

Today is Canada Day and with Labour Day just two short months away, Canadians believe that some of their most expensive spending days of the year are ahead. A recent poll by CIBC finds that 40 per cent of Canadians say they spend more money in the summer than during any other season. As well, nearly half (45 per cent) of those polled say they will need to use their credit card or dip into savings in order to foot their summer fun bill.

Key Poll Highlights:
40 per cent of Canadians say they spend more in summer compared to any other season
49 per cent of Millennials (aged 18-34) say summer is the most expensive time of year
$1,766 is the average amount Canadians plan to spend on summer fun, including travel and day trips, dining and dinner parties, recreational activities and summer goods like barbecues and sports equipment
45 per cent of Canadians say they try to save for summer fun, but find they use their credit cards or dip into savings to pay for extra costs

“Summer can be filled with social events and family travel as Canadians try to make the most of the short-lived warm weather,” says Christina Kramer, Executive Vice President, Retail and Business Banking at CIBC. “But if you haven’t budgeted for this, the costs can add up, forcing you to dip into savings or take on unplanned debt.”

When asked about this summer’s spending plans, 77 per cent haven’t saved enough to pay for summer – including 41 per cent who haven’t saved anything and 36 per cent have saved only some of what they need.

Watch out for “expense creep”

Compounding the challenge of keeping expenses in check is that in other seasonal events, Canadians often spend more than what they anticipate.

For example, a CIBC poll in November 2014 showed that Canadians expected to spend $517 on holiday shopping, however a follow-up poll in mid-December showed average spending was already at $678 with a busy weekend of shopping still to go before the holidays.

“During holidays, it’s important to avoid expense creep – which happens when you spend a little more than you expect over a period of time, and end up with an unexpected credit card bill at the end of summer,” says Ms. Kramer. “Having a budget and sticking to it is the best way to enjoy the holidays worry free. Canadians should treat these expenses the same as all others and make them part of your overall annual financial plan. Work with a financial planner so you can enjoy the summer sun and fun within your financial means and not have to hibernate for the rest of the year.”



Bad Habits and an Unwillingness to Make Sacrifices Preventing Many Canadians from Improving their Financial Standing

According to a new study released by BMO Bank of Montreal, while the majority of Canadians would like to improve their financial standing, many admit that bad spending and savings habits and an unwillingness to make sacrifices are keeping them from doing so.

The poll, conducted by Pollara, revealed:
The vast majority of Canadians (88 per cent) would like to improve their financial standing; however, more than one-quarter (27 per cent) do not know where to start. More than one third (38 per cent) say they have developed bad spending and savings habits that are negatively affecting their finances, while another 31 per cent are not willing to give up the things they enjoy to improve their financial standing.
Thirty-six per cent regret past financial decisions, 17 per cent have felt ashamed or embarrassed by their money situation and 13 per cent have avoided looking at financial statements or bills.

“Without healthy routines it’s easy for people to develop a negative relationship with their financial situation, but that doesn’t mean there aren’t ways to change things for the better,” said Christine Canning, Head, Everyday Banking, BMO Bank of Montreal. “Start by taking small, deliberate steps to reverse bad spending or savings habits to begin building positive momentum. Then, put strategies in place to help you stick to the program.”

Impulse Purchases, Over Spending and Lack of Self Control Top the List of Canadians Financial Regrets

Of those carrying financial regret, spending outside their means tops the list at 37 per cent. Furthermore:
One third (34 per cent) regret not using more self-control with their finances, including making unnecessary or impulse purchases (36 per cent).
Another 25 per cent say their past spending habits have led them into debt.
One in five (20 per cent) regret purchases that prevented them from putting funds toward savings and debt.

According to the BMO Household Savings Report released in April, more Canadians are making saving a habit by using a fixed savings plan that includes monthly contributions. In fact, one-in-three Canadians (31 per cent) have a fixed savings plan in place heading into 2015, a year-over-year increase of 19 per cent.

“It’s important that Canadians set financial goals for themselves and establish behaviours that will help achieve them,” noted Ms. Canning. “Working with a financial planner who can help build a comprehensive household budget is a good first step toward getting spending and savings habits on track.”

Ms. Canning added that BMO recently launched the BMO Savings Builder Account, which offers Canadians an industry-leading rate of 1.3 per cent when they increase their savings by $200 or more each month. The account helps Canadians get into the habit of saving, whether for a down payment on a home, a child’s education or for a rainy day.

Source: BMO



Affordability conditions continued to deteriorate in Toronto and Vancouver market

Housing trends across provinces largely counteracted one another in the first quarter of 2015, leaving affordability relatively unchanged at the national level compared to late-2014, according to the latest Housing Trends and Affordability Report issued today by RBC Economics Research.

RBC says that mortgage rate declines that took place earlier this year contributed to improved levels of affordability in many markets and housing categories where home price increases were subdued, but that deterioration was noted in markets with stronger price gains.

“Canadian markets heavily associated with the oil and gas industry – Calgary and Edmonton in particular – were impacted earlier this year by the plunge in oil prices which tipped the market in favour of buyers due to softening home prices and ownership costs,” said Craig Wright, senior vice-president and chief economist, RBC. “At the other end of the spectrum, solid price increases continued to erode housing affordability in Toronto and Vancouver which remain Canada’s hottest markets.”

Following a temporary slowdown over the harsh winter, home resales picked up smartly in the spring with resales rising 11.2 per cent between February and May to 521,400 units nationally – 11.1 per cent above the 10-year average. RBC says that demand continues to be strongest in Vancouver and Toronto, though there were signs that demand in some previously soft markets, including Montreal and Ottawa, began to pick up.

RBC anticipates Canada’s home resales will rise modestly by 1.5 per cent to 488,500 units in 2015, up from 481,200 units in 2014. The increase mainly reflects strength in British Columbia and Ontario, with mild gains in other oil-consuming provinces also making a contribution. The forecast expects partial offsets from declines in Alberta (down nearly 21 per cent) and Saskatchewan (down close to 13 per cent).

Contrasting regional affordability pictures across Canada are likely to continue in the near term, RBC says, with balanced demand-supply conditions in the majority of local markets supporting modest price increases and somewhat stable levels of affordability overall.

“It’s likely that we’ll see small price declines in the markets dependent on oil, which suggests that home ownership costs may fall further in Alberta, Saskatchewan and possibly markets in Atlantic Canada as well,” said Wright. “We also anticipate strong price momentum to further erode affordability in Toronto and Vancouver, particularly in the single-detached home segments.”

RBC points out that the eventual normalization of monetary policy, which is expected to begin in Q2 2016, could adversely impact affordability levels across Canada. Wright comments: “Exceptionally low interest rates have been a key factor keeping housing affordability levels in a largely manageable state in recent years. The knock-on effect of the anticipated rise in rates would be most visible in high-priced markets.”

The report indicates that affordability generally remains neutral in Canada, with limited signs of stress being exerted on home buyers outside Vancouver and Toronto. RBC’s measures are still quite close to their long-term averages, suggesting that current conditions are within historical norms.