Millions of Canadians will face countless decisions about what to do
with financial windfalls long after their dreams of winning this
weekend's $50-million lottery jackpot fade.
Every year some lucky lottery players defy the odds by becoming instant millionaires.
more common path to wealth for most Canadians, however, will come from
inheritances as an estimated $2 trillion will be transferred in the
coming 15 to 20 years.
Whether the money comes as a result of
someone's death, large settlement or workplace bonus, the challenges
are very similar, say estate and financial experts.
really matter if it's winning the lottery or it's actually getting an
estate. You have to go through the same emotional, psychological
(process) and seek out the right advice,” says Peter Merrick, a trust
and estate practitioner and author of the Trusted Advisers Survival Kit.
Sudden wealth will prompt many to go on spending sprees, but the key to making the money last is to avoid any major decisions.
the money in a safe interest-bearing account for at least six months
and seek out a team of professionals such as financial advisers,
lawyers and accountants to provide the right advice.
yourself time because everybody in the world is going to be giving you
advice, from your dentist to your family,” adds Merrick, president of
The money should first be used to pay non-deductible debt like credit cards and mortgages.
Beyond that, finding the right professionals can avoid costly mistakes.
survey of Ontario lottery winners found that 90 per cent put the money
in the bank, 43 per cent retired or changed jobs, 49 per cent were
solicited for donations and 95 per cent sought professional financial
While inheritances and lottery wins are tax-free in
Canada, experts can help to minimize taxes payable from income earned
with that money.
Lawyers can also write wills and do estate
planning, including the creation of trusts, to care for loved ones once
the recipient dies.
The first instinct for many is share their
wealth with family by paying off mortgages. But that can have
unintended consequences in the case of divorce since all assets in a
matrimonial home are divided evenly.
Be prepared to pay up front
for advice and don't expect that the financial planner who has sold you
RRSPs necessarily has the skills to deal with a much larger portfolio.
“If you want to just put money back into the economy, great, but if you want to keep it, there's no free lunch,” says Merrick.
should have conversations about inheritances long before a loved one's
death. Parents should ideally initiate the discussion but children
shouldn't shy away from what can be a delicate situation.
can avoid tensions that often surface in such situations among
beneficiaries. It would also burst the bubble of those who mistakenly
believe they stand to inherit great wealth because their parents were
unwilling to discuss the impact of stock market losses.
Maiorino, vice-president and head of RBC Wealth Management Services,
says the complexity of the decisions doesn't necessarily change with
the number of zeros in the newfound wealth.
He urges people in
this situation to think of what they would do if they won a very
profitable business, rather than a cash award.
“You wouldn't immediately do something like sell it or break it up and sell it's component pieces,” he said in an interview.
“You'd probably take a little while to understand what does it do, how can I benefit from it, what are the risks in owning it.”
four per cent on $50 million would generate an annual income of $2
million, more than what most people would spend in a year.
don't let the money drive decisions. Instead let your goals and desired
lifestyle determine what to do with the money.
Money can be divided into “pockets of wealth” to fund lifestyle, manage charitable giving and ensure long-term wealth.
Courcelles, director tax and estate planning for Investors Group, said
the options may vary with the size of the windfall, but it still comes
down to your values and goals.
“It's hard to think of a windfall as a problem but they can cause big headaches,” he said.
prepared for changes that will occur in your life. It can also cause
family strife from those who are unhappy with the amount of money you
Sara Plant, director of BMO Harris Private Banking, said
sudden wealth can shift the power balance in families and bring out
“back seat drivers” who want to orchestrate how the money is to be