Empty talk

There has been a great deal of empty talk and wishful thinking about the “huge” inheritances that all the baby boomers are likely to receive.

While Prince Charles probably can figure on assuming the British Crown from his mother, the Queen, others cannot be assured of large legacies from their parents.

Businesses and individuals are basing their strategies on receiving sizable legacies to pay off debts; for some they hope bequests will help to meet their retirement needs. Many consider the enhanced value of their parents’ home as probably the key item in the estates that they will receive eventually.

A review of the data reveals that undoubtedly there will be some inter-generational transfers of money, but it will be less than most anticipate.

Needless to say, a few wealthy families will leave enormous sums to the next generation, but that refers primarily to families such as the Westons, the Irvings, and the Thomsons. Their wealth is so large that even a depression cannot seriously deplete their enormous capital.

According to the latest information from Statistics Canada, the average net worth per capita is $171,000, and the typical household has 3.5 people. Thus, the standard household net worth is just under $600,000, not that much when taking into consideration other factors.

It should be noted that residential real estate remained a major contributor in family assets, and that accounted for over one-third of the gains in wealth in recent years. If, as seems quite possible, real estate values fall significantly, that obviously would erase a large portion of family holdings.

Then there would be capital gains taxes on part of the estate, say from investments, family enterprises, or from large land possessions of farmers. Furthermore, the rest would be divided among children. The average family nowadays has 1.5 children, but formerly it was nearer two offspring.

That would be the situation at the present time if all family members were to die now. However, some, perhaps a big percentage of those over 65 years old, will live for another 20 years. Many will move to nursing homes, which could be very costly. Others may enjoy their wealth, “live it up,” and spend their wealth now.

Reverse mortgages have become commonplace whereby the gains on real estate are consigned to the mortgagee.

Then too, family businesses could go into reverse as founders-seniors retire (witness the Eatons). Personal indebtedness has become almost routine, and many have taken out extra mortgages to finance everyday living. Of course, increasing numbers of seniors are helping to pay the soaring cost of secondary education.

If, as seems likely, seniors live for another two decades – plus the points cited above – it means baby boomers better not depend on receiving substantial transfers of wealth for quite some time, if ever.


Bruce Whitestone