Inherited some money? How to make your windfall pay off
With average inheritance sums landing at just under $100,000, according to a 2014 BMO InvestorLine study, that amount of cash is life-changing for many.
But these days, it might be just enough to put a down-payment on a house, according to personal finance expert Preet Banerjee. Regardless, it’s important to know the steps to take to be smart with your money, especially an amount possibly handed down by a family member.
Banerjee told hosts on Global News’ The Morning Show that the smart way to manage major cash endowments is to plan.
Pay off high-interest debts
First, take a look at your debt, Banerjee said.
“That’s sort of a slam dunk. If there’s one thing you want to do right away, pay off high-interest debt,” he said. A Statistics Canada report from September showed that debt continues to be a major weight on Canadians, with the average household using about 14.9 per cent of income to meet debt obligations.
Don’t rush your decisions
An inheritance, whether sudden or expected, often means a family member has died, explained Banerjee. Making major financial decisions during a grieving period may not be the smartest option, he said.
“You want to give yourself some time about how you’re going to use this money,” he said. “It can be attached to a lot of guilt … You may not want to make a financial decision under that emotional state.”
With 45 per cent of Canadians expecting to receive inheritances, according to a recent survey by financial advisory firm Natixis Global Asset Management, many will need to anticipate handling future funds.
Tax benefits of a living inheritance
Using that money for housing costs is common, especially for millennials who struggle to enter the housing market without financial support, said Jamie Golombek, the managing director of tax and estate planning at CIBC Wealth Strategies Group in a previous report.
READ MORE: Does Canada really need an inheritance tax?
“Housing is certainly an issue in some cities in Canada,” Golombek said. “To help with a down payment, we are seeing gifts being made — substantial gifts being made — [from parents or grandparents] to their children.”
Living inheritances also ease potential family disputes, as the family member passing along the money is still alive and can ensure it ends up where they intended, Golombek said.
“Sentimental-value items that could cause massive disputes later on if there’s more than one kid, those are often given in advance,” Golombek said. “Sometimes those are done in advance so the parents can watch this happen as opposed to them fighting over it later on.”
Watch Preet Banerjee give more tips on what to do if you receive a lottery windfall in the video above.
— With files from Global News reporter Laura Hensley
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