While there’s no consensus yet on the Canadian number, our U.S. neighbours are expecting a transfer of wealth from the baby boomers to the millennial generation to the tune of $30 trillion. What does such a significant generational wealth transfer mean for the real estate market? RBC’s Vice President, Investment and Wealth Advisor Dian Chaaban and Mortgage Professionals Canada Director of Government Relations and Regulatory Affairs J.P. Boutros chatted with TRREB President Lisa Patel on the Ready to Real Estate podcast to dissect this increasingly influential facet of real estate. Read on to get answers to some of your most pressing questions about transferring generational wealth (and catch the full episode for even more insights).
Wait, haven’t there always been “generational wealth transfers”?
Absolutely, transfers have occurred historically from one generation to the next, largely in the form of older relatives giving money through inheritances. Dian identifies that they’re more intentional and planned now, both to avoid tax implications and create a more purposeful gift – above and beyond what would be left over after settling the estate of a deceased person.
But why are they so significant all of the sudden?
J.P. points to the fact that intentional generational wealth transfers, in the form of “gifts,” are both in response to, and helping to fuel, an active real estate market. In previous generations, it was likely that first-time home buyers could afford a down payment without assistance from their parents. Due to current home prices and a stricter mortgage stress test, this is much more difficult – so parents are stepping in to help with an “advanced inheritance.” The flipside of this increased, intentional wealth transfer is that it continues to drive up the price of homes in the marketplace.
So, what happens to those who don’t have access to generational wealth?
Lisa points out that the pool of first-time home buyers isn’t as big as it used to be, simply because those who didn’t already own real estate in their families are less able to afford the necessary down payment. Dian adds that this isn’t necessarily a bad thing; long-term, it might just shift public perception around renting. In places like New York, renting doesn’t have a negative connotation and is the status quo for most New Yorkers – lifetime renters who choose to invest their money in other ways.
I’m inspired! I’d like to gift some of my wealth to my kids, but how do I start?
You’re not alone – J.P. cites a recent survey where out of 2,000 parents with adult children, 95 per cent had helped them out financially, and one-third of that group had helped specifically with a down payment. Of course, down payments aren’t the only way to gift some of your wealth; Dian notes that travel or other experiences shared among family is a great way to enjoy and share your wealth while you’re alive to do it.
Whatever you choose to do, consult with the experts! Every situation is unique, and you want to make sure that your gift is as impactful as possible.
To learn more about how the generational wealth transfer is impacting the real estate market, don’t miss this episode of Ready to Real Estate.
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