Receiving an inheritance means gaining far more than money. This windfall can be a real springboard for your future, regardless of the amount bequeathed.
That said, the emotional aspect can make decisions more difficult, so take all the time you need. Here are a few tips to help you turn your inheritance into real opportunities.
How to inherit: Steps to receiving your legacy
How do beneficiaries receive their inheritances? In Québec, the procedure for receiving an inheritance involves several steps.
- First, a liquidator (often called an executor) must make an inventory of all assets.
- They will then settle any debts and taxes owed by the estate.
- Finally, they will divide and distribute the estate among the beneficiaries in accordance with the will or, in the absence of a will, according to rules laid out by the Civil Code of Québec.
This process can take several months, depending on the complexity of the estate. Once all formalities have been completed, inheritance money is usually paid by cheque or bank transfer.
After you receive the funds, it's time to think about what's next.
01Taking a step back
Feel free to take your time. There's no rush.
Allow yourself to grieve. The money can wait a few weeks, or even months, in a savings account. This will give you the perspective needed to see things more clearly.
In the meantime, think about your goals. What's really important to you? Buying your first home? Paying off debts? Preparing for retirement? Helping your children or grandchildren? Decision-making will become easier after you establish your priorities.
02Assessing tax implications: Is an inheritance taxable in Québec?
Be it cash, investments, real estate, valuables, or even an RRSP, what you've inherited will determine the next steps to take.
Do I pay tax on an inheritance?
This frequently asked question has an encouraging answer: No, you don't have to pay tax on an inheritance you receive.
As explained by Éducaloi, in Québec, the estate will pay any taxes owed on the deceased's final income tax return. Once debts and taxes have been settled, what remains is distributed to the heirs. You don't have to declare this money to tax authorities.
To summarize, the estate will pay any taxes on the deceased's final tax return, while you, as the beneficiary, will pay no tax on the inheritance received. This is an important distinction to understand in Québec's inheritance process.
Please note: If you invest this money and it generates income (interest, dividends, capital gains), this income will be taxable, which is one more reason to choose the right place for your inheritance.
If an estate is particularly complex, consult a tax or financial planning specialist for guidance.
03Choosing the best option for your circumstances
There's no one-size-fits-all solution. The best way to use an inheritance depends on your personal situation, goals, and stage in life.
Do you have high-interest debts?
Start by paying off your most expensive debts: credit cards, personal loans, and high-interest lines of credit. Every dollar paid back means less interest that eats away at your budget month after month. Once these debts have been paid off, it will be easier to focus on saving.
Do you live from pay cheque to pay cheque?
Think about setting up an emergency fund. Aim to set aside the equivalent of three to six months of essential expenses. This financial cushion will help you to handle the unexpected without going into debt.
No idea what to do with the money right now?
While deciding, keep your inheritance safe and accessible. A high-interest savings account is often a good choice. You'll earn a little more interest than in a chequing account and still have easy access to your money. You could even invest the funds in a TFSA to shelter accumulated interest from taxation. But first, find out if you have any available TFSA contribution room.
Looking to buy your first property?
FHSAs and RRSPs are two savings vehicles that can help you achieve this goal.
- An FHSA combines the advantages of an RRSP and TFSA for the purchase of a first home.
- With an RRSP, you can borrow up to $60,000 from yourself through the Home Buyers' Plan (HBP).
FHSA or RRSP: Which is right for you? Our comparison guide will help you make the best choice for your situation.
Do you earn a good income and still have RRSP contribution room?
If you earn a high income and still have RRSP contribution room available, contributing may be an attractive option. An RRSP helps you reduce your taxable income while putting money aside for retirement. The important thing is to choose a contribution level you can maintain and an investment strategy in line with your time horizon and risk tolerance. Before contributing, verify your available contribution room and any impact on income-related benefits or credits, if relevant to your situation.
Do you have children or grandchildren?
Contributing to their RESP (registered education savings plan) is a great way to help finance their post-secondary education. The government will even subsidize your contributions.
Do you still have a good amount of years ahead of you?
If you can leave the money invested for a number of years, investing your inheritance in a diversified portfolio will help it grow over the long term while reducing the risk associated with investing in a single type of asset. The idea is to divide your inheritance between different asset classes (e.g., equities and fixed-income securities) to balance potential returns with risk levels, depending on your investment horizon and fluctuation tolerance.
Is there a cause close to your heart?
Donating to a charitable organization is a way to carry forward the legacy you have received and give it meaning, in your own way. Before making a donation, take the time to choose a cause that really matters to you (health, education, the environment, helping the vulnerable, etc.) and check the organization's credibility. Decide, as well, whether to give all at once or spread your contribution over time, depending on your budget and projects.
In addition to supporting an important cause, you may be eligible for a tax credit that can be claimed with an official receipt issued by the organization.
Getting help to make an informed decision
Whichever option you choose, enlisting the help of a trusted professional can help you make the right decision. They can assist you with clarifying your priorities, assessing the tax implications of certain options, and building a plan that takes into account both your short- and long-term objectives.
Need help making sense of it all?
My Game Plan lets you view all your savings in one place, including inherited assets. You can track the progress of your investments, adjust your goals over time, and receive concrete recommendations for optimizing your savings strategy.
Go further with a little help
An inheritance can make a real difference in the long term. Used properly, it can help you pay down your debt, achieve your goals faster, and strengthen your financial security.
Take all the time you need. Do your research and team up with people you can trust. What better way to honour this legacy and turn it into a real springboard for your life?
