The largest wealth transfer between generations in history — approximately $1 trillion — will occur over the next twenty years.

That indicates a lot of bequests will be taking place. Bank of Montreal (BMO) recently released a study of inheritances that shows the average in this country is just shy of $100,000, with bequests ranging from a little under $50,000 in the Prairies to a bit more than $120,000 in BC.

In addition, 55 per cent of us have received an inheritance and 63 per cent of us expect one. The study, conducted by Pollara in June 2014, disclosed how we plan to use the money we inherit:

  • Invest for key life events (91 per cent); reduce debt (79 per cent);
  • Travel (78 per cent);
  • Buy things we need (78 per cent);
  • Help other family members or friends with their key life events (75 per cent), and
  • Donate to charitable causes (63 per cent).

The study also revealed that 75 per cent of Canadians feel it is important to provide an inheritance for loved ones.

If your family will be a part of this massive wealth transfer, make sure everyone takes the right steps to ensure a smooth transition, ease the tax bite and protect all the heirs. To help accomplish this, you should keep open lines of communication between the generations.

Research shows that about seven in 10 adults admit having difficulty when it comes to talking with their families about bequests, financial decisions for aging parents, health care proxies and determining what bequests family members will receive. Many older people have a different perspective on money from that of younger generations, considering it to be more of a private matter.

When approaching relatives about estate planning, reassure them that you want to help, not take over their lives or finances. Keep in mind that the discussion is about them and what they want you to do. It is not about you taking over. Understand what they want and offer suggestions. If there is resistance and the process is difficult, it can help to involve their advisers.

If you are the parent or grandparent, talk to your adult kids and grandkids about your plans. Assure them you have made arrangements, or are in the process, and explain your choices. If you are part of a blended family, an estate plan discussion can avoid future conflict that could wind up with court challengers.

Here's a checklist of other financial issues to consider as you plan for your heirs:

Insurance. Name beneficiaries on your life insurance policies wherever possible and practical.

Spousal rollovers. These are particularly important to have with Registered Retirement Savings Plans (RRSP) and Registered Retirement Income Funds (RRIF). Without proper planning, nearly half of the value of your registered assets in your estate will go to taxes. With a rollover, those assets pass tax-free to the surviving spouse or common-law partner. On the death of that spouse, Canada Revenue Agency (CRA) will consider the entire value of the RRSP or RRIF to be taxable income.

Spousal trusts. These trusts, which fall under the category of testamentary trusts, work well in second marriages. The trust lets you leave assets to your current spouse or partner. When that person dies, the assets can then pass on to beneficiaries who may be the children of a previous marriage.

Family trusts. An asset placed within the trust can be sheltered for as long as 21 years. However, to transfer assets into a trust you must first dispose of them at fair market value.

Gifts. You can gift assets to adult children while you're alive.

Tax triggers. Instead of deferring taxes until death, it may pay to trigger them on your investments, particularly if you have a large gain in asset values and large RRSP amounts. Cashing in your investments and triggering the gain over several years could save money. And you can take out more than the minimum from your RRIF or de-register part of your RRSP before you reach the age of 71.

Universal life products. If you already used your RRSP deduction, these products generally save taxes because the cash surrender value accumulates tax-free. You can borrow against the funds and the loan can be repaid out of the death benefit.

Asset transfers. During your lifetime, it may pay to transfer assets to beneficiaries, but keep in mind your marginal tax rate and the tax costs of transferring assets.

Charitable gifts. Charitable bequests can be put in a will or be a part of your insurance policies. There are several ways to continue benefiting from the use of the assets while receiving a charitable deduction. For example, you could purchase an annuity from a charity, which will give you fixed annual payments for the rest of your life. And check out charitable insured annuities.

Tax losses. You may have incurred capital losses in previous years that you couldn't use because you had no capital gains. These losses can be applied to your other income in the year of death and in the years prior to death. Any post-death decreases in the value of an RRSP or RRIF can be carried back and deducted against the year-of-death income inclusion.

Business interests. Plan for the succession of your business. For example, if you own an incorporated company or a business that has accumulated significant wealth, arranging an estate freeze with your children will mean that any further growth in the company will be attributable to them. This fixes the value of the shares owned by the parents so the tax implications are a given.

Finally, if you know your estate is going to be hit by large levies, life insurance can replace the amount of money that taxes erode. Permanent "last to die" life insurance should form a cornerstone of your financial planning. It can provide income for your dependents and a fund for emergency expenses.

It can also pay for final costs, help finance business successions, pay capital gains taxes and let you accumulate tax-sheltered funds to supplement retirement income. Remember that insurance proceeds are not taxable.

Make sure you get expert advice and have a tax expert prepare a deceased person's final return. There are many deductions and special elections that can be filed with the return and you will need a clearance certificate before all assets are distributed.

Take Notes

Once you have the conversation about estate planning, consider keeping your own record of where all the files and information is kept so you can refer to it when needed.

The list should include:

  • Phone numbers and contact names;
  • Location and details related to wills, investments, and birth certificates;
  • Lists of any complex areas that might need further discussion or cause discord. For example, a family cottage that needs to be divided, a business, a valuable piece of jewelry or donations to charity.