Have you had this experience: you meet someone your age or younger who lives far beyond what you could afford?
Maybe they have a nicer house, own a business or seem to play more than they work.
Maybe, which is not uncommon in Squamish, they seem to spend their life hopping from one adventure to another, while you are living paycheque to paycheque.
They may be better at prioritizing where their money goes — or are holding massive amounts of debt to prop up that lifestyle. Or perhaps they worked harder earlier in their life than you did, have a better-paying job or married up financially. All of these are possible explanations.
But it’s also possible that they may have had a considerable boost from an inheritance.
According to a 2019 Survey of Financial Security (SFS), 31% of economic families and those not in an economic family living in B.C. reported having received an inheritance.
Economic family refers to a group of two or more people who live in the same house who are related to each other by blood, marriage, common-law union, adoption or a foster care relationship.
Advantages and disadvantages
Michelle Lee Maroto, associate professor of sociology at the University of Alberta, says that the average inheritance is about $130,000, and the median is about $49, 000.
"So, not necessarily small amounts of money," she says.
Squamish's Mark McGrath, a financial planner, notes a positive factor that many of us might associate with receiving an inheritance — it can help you achieve life goals.
“Given where we live in the world, and how expensive the cost of living is, and how expensive real estate is, it can be a huge jump start,” he says.
It can help buy a home or pay down a mortgage, save for retirement, fund children’s educations, not to mention allow the recipient to travel or make dream purchases.
“It is pretty challenging to do all that and buy your own piece of real estate… So those types of bequests or inheritances can be a huge jump start if they're managed properly,” says McGrath.
Easy come, sometimes easy go
But McGrath also says as much as we all dream of a windfall, it can go sideways.
He has seen a couple of cases in his career where the payload is gone by the time the person is in their early 20s.
He recalls a case from when he worked in a bank where a young person inherited about $400,000, and it was gone in about 18 months.
He says folks who get the money may overestimate how far it will go. If a person is young and inherits $1 million, while it is a lot of money, they likely cannot quit work and expect to have that money last a lifetime.
McGrath explains that there can be tons of family infighting over the inheritance.
"There's no glue there anymore. Families seem like they're all good, and everybody's happy. And then the parents die, and all of a sudden, it's like, 'OK, well, I have nothing stopping me from fighting the estate or from challenging it.’”
The financial planner says that often the wealth comes from the sale of the family home that has seen great appreciation since it was purchased, and so out of a 'familiarity bias', the kids who inherit the money use it to buy real estate.
"This isn't just local to Squamish. This is a Canada-wide phenomenon and probably globally in a lot of the more expensive cities where you've got this massive asset. Take a house in Squamish, it's going to be worth between $1 and $2.5 million dollars, and it's tax-free, if it's their primary residence," he says. "The kids will say, 'Well, look, you know, my parents got this huge amount of money, and it was because of real estate... So, I'm going to then use it to buy real estate.' "
There's a consequence and a risk to that, says McGrath.
"It continuously pushes up the value of real estate. [And] just because there's this familiarity and that hindsight bias, and this recency bias, everybody thinks everything only goes up. So, they just kind of keep on buying real estate."
While inheritance is a key transfer of wealth, Maroto says it is important to keep in mind other ways wealth moves through generations.
"Parents assist their adult children in a lot of different ways that aren't always captured by these direct inheritances. They might pay for children's education, especially university nowadays. There are other expenses: there are gifts people give for, say, when there are weddings or new children.”
Even being able to have an adult child who is struggling financially to move back home is a financial boost others may not have.
“There's definitely inequality in relation to it where some people don't have access to those types of things. Not having inheritance coming in terms of assets is a big deal, but not having parents to help you out when things get tough over a couple of months, or being able to move home, or having support for, say, going to university or things like that, that matters a lot,” says Maroto.
As McGrath noted, there’s also how parents help kids get into the real estate market.
Money from the bank of mom and dad, inheritance or otherwise, is clearly a factor in the market in B.C.
A survey of 193 BC Notaries across the province found that 90% of first-time buyer clients got help from parents in 2019.
Maroto has different figures from a project she is working on.
“We are collecting survey data around social class in Canada … And about 22% of the homeowners in that survey paid for their down payment with the help of parents or family members. But if we look at the people under age 35, that's 37%. So it's definitely a big deal, in this case, for younger adults these days to have that parental support for owning our homes.”
Maroto notes that the bigger picture is that, over time, there is a cumulative advantage or disadvantage.
"Those resources, get to build on those resources so that they kind of accumulate exponentially. And if you start out with fewer resources, or in the case of wealth or debt, you get further and further apart from those other groups."
Yet, as much as individuals need to keep in mind that others may not have the advantages they do and not to compare themselves to their wealthier-seeming friends and neighbours, Maroto explains the bigger picture of government policy should not be forgotten.
"I know, taxes are always hard to talk about for policy and for leaders and things like that. But it really matters in terms of taxation, where we have had decreasing taxes at the federal and provincial levels for so many years. And that's the place to redistribute wealth across groups.”
"So you can think about it on this individual level, always wanting to help support your children and doing what you can in terms of providing with them, providing them with everything you can. But also thinking about that bigger picture and being active politically, being aware of these situations, I think is really important."
Advice if you get an inheritance
McGrath says that beyond the advice to work with a trusted advisor if you get an inheritance, he also recommends sitting tight for 90 days to six months, putting the funds in a cashable GIC or a term deposit at the bank, for example.
"I think there should be a bit of a cooling-off period. You don't need to rush out and make decisions with it right away.
"In that waiting period, an inheritor can talk to experts and think about what to do with the large sum of money.
And McGrath observes there is often a heavy emotional component to receiving an inheritance. If it is from a parent or other relative, there may be ideas about what the loved one would or wouldn't want the inheritor to do with it.
"That's totally reasonable. But it's something to think about and to consider.”
Ultimately, McGrath says, "if you can manage the behavioural and emotional biases that you have when you receive something like this, it can work out."
He also advises against shouting about your windfall from the rooftops as it can impact the dynamics of relationships.
"Generally speaking, you don't want to let a lot of people know that you've inherited a chunk of money because it can cause jealousy among acquaintances and friends even," he says.
If you will be leaving an inheritance
On the flip side, if a person is planning to bequeath an inheritance, communication is key.
"Family meetings are number one. A lot of people don't talk about money — money is very taboo in a lot of families.
Having roundtables with your family, making sure that when you're drafting up your own estate plans, your executor is aware and your beneficiaries are aware of not only how things are being divided up, but why they're being divided up that way," says McGrath, noting explaining why child X is getting more than child Y, for example, can prevent not only pain but also the issue ending up contested in court down the line.
"And you definitely want to be working with a good estate lawyer when you're drafting up these types of plans, because, in B.C., your beneficiaries can challenge your will if they feel that the distribution was uneven."