Guide to Intergenerational Wealth Transfer: Preserving Your Legacy Through Strategic Planning

Guide to Intergenerational Wealth Transfer: Preserving Your Legacy Through Strategic Planning

By James Parkyn - PWL Capital - Montreal

You've built a strong financial foundation. Now, it’s time to ensure a smooth transfer of your wealth to loved ones. The Parkyn—Doyon La Rochelle team understands the complexities of intergenerational wealth transfer and can guide you through every step. Working closely with your tax and legal professionals, we'll create a clear and comprehensive plan to fulfill your wishes.

What is Intergenerational Wealth Transfer?

Intergenerational wealth transfer involves passing of assets like money, property and investments, from one generation to the next. This transfer often occurs within families, through inheritance, gifts, or trusts, sustaining family financial legacies and giving future generations economic advantages.

The Importance of Careful Intergenerational Wealth Transfer Planning

For financial advisors, helping clients transfer wealth across generations is one of the most significant and rewarding challenges. We have been working with families in Montreal and across Canada for over 25 years. We are dedicated to helping our clients navigate these important, often emotionally charged milestones, while ensuring they feel supported and heard throughout the process.   

We provide thoughtful support, information, and resources to make this process a success. This includes collaborating with your trusted legal and tax advisors to help secure your financial legacy, promote harmony, and ensure enduring family values are passed to the next generations. As your “quarterback,” we work with your team of professionals to ensure your family proceeds with confidence.

Careful wealth transfer planning is crucial for two key reasons:

• Preserving Wealth: Proper planning helps mitigate risks like tax burdens and mismanagement, protecting wealth for future generations.
  
  Minimizing Disputes: A clear, documented plan can reduce family disputes over inheritance, fostering harmony and continuity.

Essential Estate Planning documents

For provinces where common-law applies:

• Legal will

• Ethical Will

• Revocable Living Trust

• Durable Power of Attorney for Financial Affairs

• Durable Power of Attorney for Medical Decisions

• Living Will for Quality-of-Life Decisions

For Quebec Residents where the civil code of Quebec applies:

• Legal Will

• Ethical Will

• Protection Mandate for Financial Administration and Medical Care

• Advance Medical Directives

Key Strategies for Intergenerational Wealth Transfer

• Estate Planning: This is the cornerstone of wealth transfer. Comprehensive estate planning involves wills, trusts, and other legal instruments to ensure your assets are distributed as you wish. Trusts offer added flexibility, allowing for specific conditions and timelines.

• Tax Planning: Tax-efficient wealth transfer is essential. Strategies like gifting, charitable donations, and tax-advantaged accounts can significantly reduce the tax burden on heirs. For families with privately held businesses, an estate freeze may be a valuable tax strategy.

• Education and Communication: Preparing the next generation to manage and grow their inheritance is crucial. Financial education, involving heirs in family business decisions, and open communication about wealth transfer plans promote readiness and alignment.

Role of Philanthropic Planning in Intergenerational Wealth Transfer

Philanthropy is increasingly integral to wealth management, with high-net-worth families recognizing the importance of giving back. Integrating philanthropy into wealth transfer planning offers several benefits:

• Tax Benefits: Charitable donations can reduce tax liability, maximizing the wealth passed on.

• Legacy Building: Philanthropy allows families to establish a lasting legacy that reflects their values and commitment to societal good.

• Engaging the Next Generation: Involving younger family members in philanthropy fosters a sense of responsibility, empathy, and community service.

Effective Philanthropic Planning Strategies

• Charitable Trusts and Foundations: These allow for structured, sustained giving aligned with the family's values, ensuring a long-term impact.

• Donor-Advised Funds: Popular in Canada, Donor Advised Funds (or DAFs) provide a flexible, tax-efficient way to manage charitable donations. Donors can make a charitable contribution, receive an immediate tax benefit, and recommend donations to charitable organization from the fund over time.

• Impact Investing: This approach involves investing in ventures that generate social or environmental benefits alongside financial returns. It’s a powerful way to align investment strategies with philanthropic goals.

It’s Never Too Early to Plan Your Wealth Transfer

Intergenerational wealth transfer and philanthropic planning are essential to building and preserving family legacies. By combining sound financial strategies with a commitment to philanthropy, families can ensure their wealth sustains future generations and contributes to a greater good.

At Parkyn—Doyon La Rochelle, we specialize in implementing personalized strategies that align with your family’s values and goals, ensuring a seamless, impactful transfer of wealth. Working alongside your preferred legal and tax professionals, we make the process efficient and worry-free.

Let us help you secure your legacy and make a lasting difference. Contact us today to learn more about our comprehensive wealth transfer and philanthropic planning services.

For more commentary and insights on investing and personal finance, listen to our Capital Topics podcast and subscribe to never miss an episode. And download your free copy of our popular eBook Seven Deadly Sins of Investing.

Why Financial Planning is Key for Achieving Financial Goals

Why Financial Planning is Key for Achieving Financial Goals

By James Parkyn - PWL Capital - Montreal

The future. As much as we want to predict it, crystal balls remain beyond our grasp. But we can and should plan for tomorrow, especially where our finances are concerned.

American author Alan Lakein captured it best: “Planning is bringing the future into the present so that you can do something about it now.”

As trusted financial advisors for highly successful Canadians, our role at Parkyn—Doyon La Rochelle is to provide you with the right tools and knowledge so that you can achieve their financial goals with confidence – even amid life’s unexpected twists and turns.

And at the heart of our approach to wealth management is financial planning.

What is financial planning?

Financial planning is the process of creating a strategic roadmap to manage and grow wealth for financial security and legacy preservation. This includes assessing current financial status, setting short- and long-term objectives, planning for investment strategies, estate planning, tax optimization, philanthropic endeavors, and risk management. Effective financial planning maximizes wealth, mitigates risks, and prepares for sustained financial success and generational wealth transfer.

Why is financial planning important?

Anyone with financial goals needs a financial plan. After all, without a plan, a goal is just a wish.

“Financial and investment planning are critical, because they let you know whether your current actions are within the realm of reasonable”

— Morgan Housel, Psychology of Money

Developing a financial plan is not about predicting the future. It’s about determining the best route for achieving the financial goals you want to achieve, based on where you are today and where you want to be in X years. It also considers various courses of action to take based on what might happen along the way.

5 ways a financial plan can help

The Parkyn—Doyon La Rochelle team has devoted the last 25+ years to helping high net-worth clients manage their wealth. From experience, we can confidently say that everyone’s financial goals may vary, but the benefits of having a robust financial plan do not.

Here are the reasons we believe a comprehensive financial plan is essential:

1. It keeps you focused and motivated: By establishing clear, achievable goals, we can create a detailed roadmap to reach them. This process helps you maintain focus and motivation, ensuring that your actions align with your desired outcomes.

2. It avoids wasted time and efforts: By breaking down larger goals into smaller, manageable tasks, you can prioritize effectively and avoid wasting time on less important activities.

3. It makes the most of your resources: Planning helps us allocate a resource like money efficiently to maximize its impact. The investment portfolios we build are always in service of your financial plan objectives.

4. It avoids potential pitfalls: Through planning, we can identify potential risks and devise strategies to mitigate them. This proactive approach helps you avoid potential pitfalls and prepare for unforeseen challenges.

5. It keeps you on track: By monitoring your financial results, we can see what aspects of the plan are working well and which ones need adjusting to ensure we hit all your financial targets.

Parkyn—Doyon La Rochelle’s financial planning services

At Parkyn—Doyon La Rochelle, we take a holistic view to financial planning, meaning we look at all aspects of your financial life as a whole. Together with you, we develop with you a comprehensive, well-prepared plan that’s focused on your goals, with safety margins built-in so that you can achieve these goals more confidently. 

Here’s how we assist you in preparing for life’s significant financial milestones.

• Tax planning: Our team is well-versed in tax laws and regulations and collaborates actively with your accounting and legal specialists to provide strategic tax planning services to optimize your financial position. We assess your unique situation, identifying opportunities to minimize tax liabilities while maximizing savings and investments.

• Insurance planning: We work with external insurance specialists, who will assess your risk management requirements and recommend suitable coverages to safeguard your financial interests.

• Estate planning: We collaborate with external legal specialists to help you navigate the intricacies and ensure your assets are distributed according to your wishes while minimizing tax implications.

• Retirement planning: We provide asset projections, cash flow analysis, sustainability reviews, and pension plan evaluations to ensure a secure and sustainable retirement journey.

• Education funding strategies: We assist you in planning future educational expenses. We offer solutions for savings and investment strategies to ensure educational goals are met affordably and effectively.

• Support for incorporated individuals: We help business owners and incorporated professionals such as doctors optimize their financial situation. We tailor strategies with experts to reduce tax burdens, optimize financial efficiency, and balance both personal and business goals.

How can you know if your financial plan will be successful?

Part of the responsibility of any financial advisor is to stress-test your financial plan to evaluate its resilience in different scenarios.

“A plan is only useful if it can survive reality. And a future filled with unknowns is everyone’s reality. A good plan doesn’t pretend this weren’t true; it embraces it and emphasizes room for error”

— Morgan Housel, Psychology of Money

Here are some stress-test methods we use:

• Scenario planning: We consider different scenarios that could impact your finances, both positive and negative, to see how your plan would adapt to these situations.

• Monte Carlo simulation: We use complex computer simulations that run your financial plan through thousands of possible future market conditions. This tells us the probability of your plan succeeding under different circumstances.

• Sustainable withdrawal rate testing: This involves estimating a safe withdrawal rate from your savings in retirement, i.e. how much money you can safely spend every year and not run out of money. We can help determine a sustainable withdrawal rate for your situation.

• Regular review and updates: Your financial situation and goals will change over time. Through regular reviews, we’ll update your plan to reflect your current circumstances to ensure you remain on track to reaching your goals.

The financial plan we create for you offers guidance and a clear action plan for today, ensuring you can confidently navigate whatever challenges tomorrow may bring.

Your customized financial plan begins with a call

For more commentary and insights on investing and personal finance, listen to our Capital Topics podcast and subscribe to never miss an episode. And download your free copy of our popular eBook Seven Deadly Sins of Investing.

Revisiting an Essential Guide: Why Young People Must Cultivate Both Financial and Human Capital

Revisiting an Essential Guide: Why Young People Must Cultivate Both Financial and Human Capital"

By James Parkyn

Due to overwhelming demand, we're bringing back one of our most popular posts, "Young People Need to Grow Both Their Financial and Human Capital." As parents increasingly seek guidance on introducing their children to the world of investing, the message in this post remains as vital as ever. The earlier one starts building wealth, the better, and many parents who wish they'd begun sooner are now eager to equip their kids with essential investing skills. To aid in this endeavor, we've created the eBook, Investing Life Skills for Early Savers, which has resonated deeply with readers. This compact guide distills seven crucial investing concepts into just 28 pages, making it an indispensable resource for young savers. As we revisit this insightful post, we hope it serves as a timely reminder that, much like the classic Nike slogan suggests, in investing, the most important step is simply to start.

For more insights and information on investing and personal financing topics, listen to our Capital Topics podcast on our website or wherever you get your podcasts.

Raise taxes on high income earners? Let’s try another approach

Raise taxes on high income earners? Let’s try another approach

By James Parkyn

Canada’s social safety net is a great achievement by successive generations in this country. It provides health care, support for the poor and disabled, and pensions for senior citizens among other critically important benefits that citizens of other countries can’t count on.

Of course, someone has to pay for all those services and they’re a big part of the reason why Canadians—especially higher income earners—pay a lot of taxes.

Now, most people support the idea that underpins our progressive tax system – those who earn more should pay more. However, a thornier question is: At what point do high taxes become a disincentive to work and fuel for tax avoidance?

There’s a common perception that the better-off do not pay their fair share of taxes and that perception is used by politicians to pile tax increases on the upper end of the income spectrum. Finance Minister Chrystia Freelance was at it again last March when she raised taxes on wealthier Canadians so they would “pay their fair share.”

However, in a recent report, the Fraser Institute found that higher income Canadians are paying more than their fair share, much more. The report calculates that the top 20% of income earning families in Canada pay nearly two-thirds (61.9%) of the country’s personal income taxes and more than half (53.1%) of total taxes.

The report’s authors state that “raising taxes on high income earners ignores…the associated behavioural responses of taxpayers.” Those responses include tax avoidance and evasion and results in government collecting less revenue than expected.

In this light, it’s notable that one big reason that Freeland was pushed to raise taxes in her March budget was that the government collected $5.7 billion less revenue last fiscal year than it initially projected.

The top marginal income tax rate in Quebec is 53.31% and kicks in at $235,675. In Ontario it’s 53.53% starting at $235,675 and for B.C. it’s 53.50% starting at $240,716. While $236,000 may not strike you as particularly wealthy, you only have to look a few tax brackets lower to see how much earners who are solidly in the middle class have to pay.

For example, income between $106,717 and $119,910, the marginal rate in Quebec is 45.71%, meaning for every extra dollar people earn above $106,717, they pay 46 cents in income tax. And, of course, that doesn’t include the sales taxes, fees and other levies.

Even taxpayers with far lower incomes end up paying “marginal effective tax rates” of around 50% when the complex interaction between transfer programs, tax credits and taxation of income is taken into account, according to another Fraser Institute study.

Is it any wonder then that many Canadians prefer to avoid working extra hours even as businesses struggle with serious labour shortages? Or that under-the-table work is rampant, as is undeclared income? It’s basic psychology that when marginal tax rates hit 50%, people ask why bother working extra hours, or they start looking for ways to hide income. The social compact between taxpayer and governments starts to break down and that’s what we’re seeing today.

Last year, the Canadian Revenue Agency estimated the federal “tax gap” at $23.4 billion a year. That’s the difference between how much the federal government collects each year and how much it could have collected if every individual and corporation paid all the tax they legally owed. The CRA’s number seems low to me, but it does signal that governments need to devote more resources and hire more skilled people to crack down on tax evasion.

We support the progressive tax system and full compliance with it. The real debate we need to have is: How can we both increase compliance and lower marginal tax rates? Because when people can legally keep more of the money they’ve earned in their pockets, governments will find they are bringing in more revenue, not less.

For insights on passive investing and personal finance, listen to our Capital Topics podcast and subscribe to never miss an episode.

Young People Need to Grow Both Their Financial and Human Capital

Young People Need to Grow Both Their Financial and Human Capital

By James Parkyn

Many of our clients ask us to help get their children started on building wealth using our time-tested, evidence-based approach to investing.

They know when it comes to saving and investing, the earlier you get started the better. In fact, many have told me they regret not starting much younger themselves. These parents see investing as an essential life skill and want their kids to get going as early as possible.

That’s why I wrote our new eBook, Investing Life Skills for Early Savers. I wanted to present key concepts in an easy-to-read format that’s accessible and relevant for young people. Judging by the positive response we’ve received so far, this guide has hit the sweet spot with readers.

It covers seven essential investing skills over just 28 pages. You won’t be surprised to learn the first of these is titled Getting Started. In investing, as in so many things in life, more than half the battle is taking the first step. Indeed, I’ve often thought the famous Nike slogan should have been: Just Start It.

The psychological barriers aren’t easy to overcome. But, by beginning now, you get into the habit of saving, give your money more time to compound and build your confidence to deal with market fluctuations and make smart money decisions.

Other topics covered in the eBook include the importance of cultivating an investor mindset, understanding human biases, diversifying to reduce risk and controlling your emotions.

Another skill that’s discussed is managing your human capital. It gets very little attention in the media but is of critical importance, especially for young people.

Human capital is your potential to generate income over your lifetime. It can be defined as the present value of all future income from working and, for most people, it’s their most valuable asset. For young people, it comes to a huge number and is even more valuable because it’s hedged against inflation – wages tend to rise over time.   

You can increase your human capital through education, training and cultivating interpersonal skills. You also need to protect it. You do so with such tools as disability insurance, which is less popular than life insurance, but statistically much more likely to be needed.  

If you’re like most people, you’ll be rich in human capital when you start your working life, but poor in financial capital. As you move through your career, your goal should be to convert your human capital into financial capital by earning, saving and making good investment decisions.

I encourage you to download your free copy of Investing Life Skills for Young Savers, regardless of your age. If you have any questions or comments about it, please let me know. And don’t hesitate to contact us if we can help with your family’s financial needs.

For more insights and information on investing and personal financing topics, listen to our Capital Topics podcast on our website or wherever you get your podcasts.