Intergenerational Wealth Planning in Canada

Preserving pre-retirement wealth
Drawing on wealth as income
Disbursing retirement wealth
Managing inherited wealth

Key takeaways:

Intergenerational wealth can begin with you or the generations that came before you.
Your financial legacy is built during your earning years and preserved into retirement, ensuring you have enough to live the life you want to when you retire and to pass along to the next generations.
Estate planning is a vital step in preserving and transferring intergenerational wealth, as it sets up the next generation for success as the future stewards of your legacy.
If you are receiving an inheritance, work with your loved one prior to the wealth transfer in order to fully understand their motivations, their goals, and how you can build that wealth into your own financial plan.

Your whole working life has been leading to this point: building on, drawing on, and passing on generational wealth. From your early career moves to your first investment strategies, you have committed yourself to growing and sustaining your financial legacy. It’s almost time to reap the rewards of all that effort, so let’s make sure you’re ready.

Preserve your pre-retirement wealth

Preparing for retirement in Canada can feel overwhelming as you consider the shift from earning money to drawing on your wealth for income. Take the stress out of this next stage of your life by creating a retirement wealth preservation plan that will help you take stock of where you are financially, how much you’ll need to retire, and what you’d like retirement to look like.

Next, consider how much you’ll need to retire. To do this, assume a 40-year retirement and anticipate drawing the recommended 60-70% of your current annual income to maintain your lifestyle into retirement.

Then, decide whether or not you’ll add travel or hobbies to your retirement that might increase the amount of money you’ll need to live your best retirement life.

Once you have an idea of where you stand, you can strategize which streams of retirement income you want to include in your portfolio to draw on, like private alternatives that are designed for long-term investment, while potentially paying out regular tax-efficient distributions. And you can make an estate plan that will help you decide how and when you want to disburse your wealth to the next generation.

Learn more about how you can preserve your wealth and make your dream retirement a reality.

Draw on your wealth for income

Shifting from accumulating wealth to drawing on it for income requires careful planning and strategy to make sure you have enough funds to last you through your golden years and to also help ensure you’re maximizing every dollar with tax efficiencies.

Generally, retirement income in Canada comes from three different sources:

Public pensions, namely Old Age Security (OAS) and Canadian Pension Plan (CPP), both available to Canadians based on differing criteria
Workplace pensions, which are registered accounts that can be contributed to by your employer or by you and your employer while you’re working
Personal savings and investments, including any registered and non-registered accounts and the investments held in them

Once you understand how much you’ll receive from each of these sources, you can calculate your anticipated retirement marginal tax bracket, whether or not you’re eligible for pension-splitting benefits, and the tax implications of each source of income. This will help you develop a wealth decumulation strategy based on the net amount of retirement income you will be receiving.

Leveraging tax-efficient retirement income is another key component to maximizing your retirement wealth. Specifically, make sure you’re fully utilizing the tax advantages of your registered accounts, like your Tax-Free Savings Account (TFSA) or Registered Retirement Income Fund (RRIF). And for your non-registered accounts, consider including investments with more tax-efficient earnings, like Skyline real estate investment trusts (REITs), which pay out regular distributions as either capital gains that are only 50% taxed or Return of Capital (RoC), which is a portion of your original investment and therefore not classified as income.

Learn more about how to protect and grow your retirement income.

Disburse your retirement wealth

Building wealth over your working life was about more than just retirement. It was also about leaving a legacy of generational wealth to those who will come after you. Managing your retirement portfolio to balance supporting your lifestyle with growing your wealth to pass along to your heirs requires strategies for preserving your family legacy that satisfy both your short-term and long-term financial needs.

As with the other stages of your investment life, portfolio diversification is still a solid strategy to help buffer your wealth against market uncertainty. Ensuring your retirement portfolio is anchored in strategic asset allocation can provide potential security over your streams of retirement income, while growing your investments. Beyond the traditional 60/40 split of equities and fixed income, private alternative investments can be an effortless integration into the modern portfolio, presenting an opportunity for potential stability and growth for your wealth. For example, incorporating historically stable private alternative investments in Canada, like Skyline Apartment REIT, Skyline Industrial REIT, Skyline Retail REIT, and Skyline Clean Energy Fund, can help not only provide that diversification, but also potential consistent income and increasing values.

And the biggest key to managing your retirement wealth is to create and clearly communicate an estate plan. Estate planning in Canada includes deciding who your beneficiaries will be and informing those beneficiaries about the wealth they will inherit to reduce the stress surrounding the time they receive that transfer of generational wealth. In addition to providing them with information about the assets themselves, you can also talk to them about the strategies you used to build the wealth, the vision you see for the future, and the values you have followed and want to instill in them as they become stewards of your legacy.

Learn more on how to protect and pass along your wealth with confidence with a wealth disbursement plan.

Manage any inherited wealth

Your wealth is potentially one link in a generational financial legacy, and you may also be in line to receive an inheritance. Managing an inheritance in Canada and how it can fit into your existing portfolio, while navigating grief, can be complex and overwhelming. There are a few things you can do to make a difficult time easier to navigate.

If possible, make an inheritance financial plan for any anticipated inherited wealth ahead of time to help ensure you’re well positioned to accept the windfall, while also giving you an easy-to-follow process so you can stay focused on next steps instead of feeling like you’re floundering.

Remember that even without a plan, there is no rush after you’ve lost a loved one to make any major decisions. Take the time you need to grieve and get organized so you can be in the right headspace to accept and take over the new additions to your portfolio.

Once you’re ready, carefully review the details of your heritance, taking note of the types of investments you have been entrusted with. While there is no formal inheritance tax in Canada, there may be probate fees, taxes that have to be considered, and different ways the assets will be transferred to you, depending on the types of investments and accounts and your relationship to your loved one.

And after you fully understand what you are inheriting, you can determine how best to incorporate it into your own wealth plan. As with your current portfolio, you should consider the diversification of the assets transferred, their long-term value and short-term returns, and any tax efficiencies you can leverage. Further, you may want to consider the benefits of compounding. You can achieve this by selecting investment products that give you the opportunity to reinvest any earnings back into your investment instead of taking the cash. For example, each of the Skyline REITs have a Distribution Reinvestment Plan (DRIP) that you can enroll in, which automatically purchases more units on your behalf with any distributions. You can also invest in a growth-oriented fund like Skyline Clean Energy Fund, which doesn’t pay distributions but reinvests any earnings to potentially increase the unit value of your holdings. Going for the long-term play instead of thinking just in the short-term can help preserve the legacy you’ve received and allow you to pass it along to your own loved ones.

Find out how to confidently and successfully become the steward of your family’s financial legacy when you receive an inheritance.

Next steps

Growing and preserving your wealth is a life’s work that potentially begins generations before you and will hopefully continue into the generations that follow. As you begin to reap the rewards of your earning years, help protect your financial legacy by:

Making a retirement wealth preservation plan that will get you through the last stretch of your working life and support you in your golden years
Strategizing the sources and withdrawals of your retirement income, taking advantage of tax efficiencies, and diversifying your portfolio to both live off your wealth while growing it for the future
Establishing a wealth disbursement plan with your loved ones that addresses all your assets, names beneficiaries, and details how you want your intergenerational wealth to be managed in the future
Preparing to receive your own inheritance from a loved one by reviewing their estate plan and considering how you want to incorporate that new wealth into your existing financial foundation

Intergenerational wealth planning in Canada can be a daunting task. Regardless of where you are in the process of building and sustaining your financial legacy, keep in mind the potential of tax-efficient distributions, compounding returns, and portfolio diversification. Making strategic investment decisions, like including private alternative investments, such as Skyline’s REITs and Skyline Clean Energy Fund, can help you leverage all three of these facets so you and your loved ones can all live the lives of your dreams.

Protect and grow your financial legacy.

Find out how Skyline can help.

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Managing generational wealth FAQs

What is generational wealth planning?

Generational wealth planning in Canada includes a few different components. Specifically, it means that you are strategically and intentionally investing and growing your personal wealth over the course of your earning years to provide you with a comfortable lifestyle and retirement and a financial foundation for your loved ones in the future. It also means you may have received an inheritance from a loved one that can help you either further bolster your current portfolio and wealth or trigger the building of your own financial legacy. Planning how to manage intergenerational wealth is vital regardless of where you are in the process, as without careful stewardship, you could lose momentum or risk decreasing the amount of wealth available to you and your loved ones.

What are examples of generational wealth?

Generational wealth includes any assets that can be passed from one generation to the next and retain or grow in value over time. This can include a variety of assets, including cash, investments, real estate, companies, and personal heirlooms, like fine art, jewellery, or other valuable items.

Why is generational wealth important?

In a world of rising inflation, market uncertainties, and an increased number of obstacles faced by younger generations as they try to secure their education, careers, and homeownership, generational wealth has never been more important. Generational wealth for those who are earning and building it means creating an enduring legacy and set of values to be passed along to the next generations. For younger generations who stand to inherit, generational wealth means a financial head start, long-term financial stability and security, and increased opportunities that may otherwise not be available to them.

What is the difference between wealth accumulation and decumulation?

Wealth accumulation generally happens during your working years, where you are actively earning income via employment and accruing wealth passively through strategic investments and savings. Wealth decumulation, on the other hand, generally happens during retirement, when you shift gears to securing the foundational wealth you have built during your earning years, while drawing on that same foundation to fund your retirement with passive income.

How do private alternative investments fit into retirement planning?

Retirement planning includes identifying and establishing potential streams of retirement income and strategizing how you will grow and preserve those sources and draw on them for income at the same time. Private alternative investments, specifically ones like Skyline Apartment REIT, Skyline Industrial REIT, and Skyline Retail REIT, can be a strategic addition to a retirement plan, because they can help balance both your short-term and long-term goals, potentially giving you both the income you need today and preserving your wealth for the future. Growth-oriented funds, like Skyline Clean Energy Fund, and investment products that include a Distribution Reinvestment Plan (DRIP), which is available with all Skyline REITs, can also bolster that long-term wealth preservation by harnessing the power of compounding to maximize any potential growth.