Lump Sum Income (Inheritance, Pension Lump Sum, etc.)

It is easy to add an inheritance or any lump sum amount, positive or negative in Snap Projections.  In the following article, we use an example of an expected inheritance in a future year to illustrate how to add a lump sum amount into your projections.  Positive lump sum amounts are also entered in projections involving a commuted pension, and negative lump sum amounts are entered in projections where you wish to model specific expenses.

In this article:

  1. Enter the expected income
  2. Ensure the income is being saved or spent as desired
1

Enter the expected income

Go to the Income page by selecting Scenario Setup -> Income.

On the Income page, click Add Income. In the Description column, enter Inheritance. The value entered for the description is the column title for this income on the Planning page.  Leave the amount at $0, select Other for the Type, and select No for the Taxable and RRSP Eligible columns.  The value entered for the amount will be applicable for every year of the projections.  This is why we enter $0 as the amount here, and then we will edit the one year's inheritance amount right on the Planning page. 

Back on the Planning page, there is now a column called Inheritance. You can enter the appropriate lump sum amount at the age the client may expect to receive their inheritance (e.g. $150,000 at age 65).

It is important to re-run the scenario after entering the lump sum amount.  Click Run Scenario to update the calculations. 

Tips: For lump-sum amounts that you wish to split between 2 spouses, do the same steps above for each spouse, and allocate a portion of the total lump sum amount to each spouse.  

Remember that Snap works with nominal dollars within the projections. To convert from today's dollars to future dollars, you can click the Index at checkbox before selecting the blue checkmark. The amount will be converted to nominal dollars for you based on the Index at percentage and the number of years until the person reaches that age.

In this example, $150,000 in current year dollars would be $168,924 in that future year based on 2% inflation.


2

Ensure the income is being saved or spent as desired

Example 1: Automatic cash flow management is enabled, and contributions are automatically made. 

If automatic cash flow management is enabled (meaning that the year of the inheritance is after the year where the blue dot is selected under the CFM Start Age column), the inheritance will be automatically allocated to any existing assets according to the default logic.  

In this example, Snap automatically maximizes the available RRSP and TFSA contributions and contributes the rest of the surplus to the non-registered account. 

With this approach, you can enter any lump sum amount, either one-time or recurring (for example, every 5 years). The lump-sum amount can be either positive or negative. If a negative value is used, the lump sum will act as an expense and it will reduce the available cash flow by that amount. 


Example 2: Automatic cash flow management is enabled, and a contribution override is made to a specific asset or debt. 

Even if the inheritance has been automatically allocated to any existing assets according to the default logic, you can also enter a specific contribution to one or more of the available assets to override these automatic savings.

In this example, we have specified that the entire inheritance should be contributed to the non-registered asset. In order to reach the client's after-tax spending target, Snap withdraws $868 from the TFSA.  This is because the contribution override of $150,000 blocks the software from withdrawing any funds from the non-registered account to support the client's After-Tax Spending need.

Another option would be to use the inheritance to pay off the mortgage and avoid saving any inheritance to the RRSP.  To do this, we enter an amount of $0 for the RRSP contribution that year and update the Amount Paid for the debt.  By entering $150,000 for the mortgage payment, Snap recognizes that this payment is more than what is needed to pay off the mortgage.  After running the scenario, Snap will automatically reduce the Amount Paid to the full amount owing on the mortgage.

The mortgage has now been paid off with the Amount Paid displayed as $105,035.  The remaining surplus cash from the inheritance is contributed to the TFSA and the non-registered account because we have placed a $0 contribution override on the RRSP account, blocking any automatic contributions there.


Example 3: Automatic cash flow management has not started yet, and a contribution override is made to a specific asset or debt. 


If the inheritance is expected in a year where the automatic cash flow management is disabled, you will need to manually save the income to one of the assets.  Otherwise, it will be assumed to be spent.  

In this example, the CFM Start Age is 65.  Before that age, any surplus cash will be spent unless you enter contributions to the accounts manually. Here, you can see the inheritance is being spent in the year 2026 since the After-Tax Spending in real dollars is $187,536 that year.  This value is the inheritance plus any surplus cash leftover that year. 


In order to ensure the inheritance is saved, we have entered a larger contribution to the TFSA and an additional contribution to the Non-Registered account. 



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