Recently, I wrote about the gifting of cash or assets during one’s lifetime as an alternative method of distributing your wealth (beyond what you need to live on comfortably) and possibly avoid taxes (probate, income etc.) at time of death. I suggested that your heirs could use the funds in a manner that will likely cost less tax: For example pay down some personal debt, apply it as a deposit on a house, or turn around and invest in non-registered or registered investments.
I received a number of notes in return (all welcomed) but I wanted to share one in particular which best summed up a lot of the feedback I received. This reader wrote… “As a parent (and recent retiree) I believe it is better to help my adult children now financially if possible rather, than waiting 2-3 decades if I enjoy favourable health. This could be the difference for them in their ability to buy a home for instance.”
Further, he wrote “with this financial support however; it is imperative that proper advice and planning is combined with the gift. Money may be used for “paying down debt”… however, remember I worked hard my whole lifetime to acquire and built those assets, I am now sharing with my children. It would be wasted money to help them pay down debt… only to see them acquire more debt later on. Financial planning should be included in the conversation”.
And, “your family are not the only ones who would appreciate your financial support from this “never money”. There are many worthwhile charitable causes that would benefit from your generosity as well. By including philanthropy into your planning; it also encourages your family to think about their own planning and generosity in the future”
So as this note suggests, be cautious. in the event you wish to do something like gifting, you may want to take the opportunity to seek professional guidance from any of my fellow bloggers or one of your choosing to guide you thru the legal and financial implications of gifting.
Gifting can be a bit of minefield. There are the family dynamics to think about. Gifts to your children for instance may (or may not) need to be protected if the event of marriage failure in the future, particularly if the money went to purchase the matrimonial home. In this vein, you may want to place restrictions on your gifts or under certain circumstances make loans instead of gifts.
As a further thought, the government of Canada is trying to eliminate the use of trusts for tax minimization purposes but these vehicles may still be of benefit in managing the wealth transfer you wish initiate. A pro might be very helpful in guiding you through this.
Happy reading, and Larry D. thanks for your note.