Sharing your wealth while enjoying the lifestyle you’ve saved for

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After a decade-plus of anticipation, predictions and projections by economists, the great wealth transfer is under way in Canada to the tune of $1.1-trillion.

Between 2018 and 2028, the silent generation and baby boomers are expected to pass on significant financial gifts to their grown children, grandchildren and other family members, according to the Investor Economics 2019 Canadian Household Balance Sheet Report. This comes at a challenging time for younger generations that are navigating rising student debt, increasing day-to-day expenses, and ballooning home-buying costs.

Many parents and grandparents are offering financial assistance during their lifetimes rather than just earmarking money as inheritances. Think $75,000 to help with an adult offspring’s first down payment or incremental payments to cover a chunk of a grandchild’s Registered Education Savings Plan (RESP).

For many gift givers, providing money while they’re still alive just makes sense. Not only will they eventually save on probate fees, allowing more of their estate to reach their family rather than going to taxes, there’s a great deal of benevolent satisfaction that comes from seeing their money used and enjoyed.

Even so, before signing a cheque or transferring securities, it’s still important to run calculations and work with an experienced retirement advisor to draft a financial plan to make sure you’ll still have the funds needed to bankroll your lifestyle for years to come. Yes, helping to pay for your children’s weddings are wonderful gifts, but if that means going without in your golden years, it’s better to find another way to support them now.

“Before making a financial gift, ensure you’ve assessed your own financial health,” says Carissa Lucreziano, vice-president of financial and investment advice at CIBC. “A wise gift is one that doesn’t jeopardize your financial stability.”

That means factoring in your current and future income, retirement savings, living expenses, inflation, emergency funds and outstanding debt or any other financial commitments. You’ll want enough money to live well and meet your goals. (That dream trip to celebrate retirement someday? You deserve it.) Any money you give away should be money that you won’t require to live your desired lifestyle.

What kinds of gifts?

First, the good news: In Canada, there’s no limit on how much you can give now or after your death. What’s more, recipients pay no income tax in Canada on a monetary gift itself. However, you may need to speak to a professional to ensure you understand the tax implications of giving certain gifts.

“Gifting isn’t just about writing a cheque. You can share wealth in many forms – property, stocks, or even a life-insurance policy. Each comes with its own map of benefits and considerations,” says Ms. Lucreziano.

While there are many options, cash is still the most straightforward, whether you write a cheque or send an e-transfer. No wonder 50 per cent of Canadian parents who plan to give their adult children a financial gift expect to give cash, according to CIBC’s 2022 Gifting Poll. Accessing funds from an investment account is another option but be aware that siphoning money from a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) will likely mean paying more in taxes yourself. It’s best to talk to an advisor about the tax implications of different scenarios to ensure you understand the impact on your finances.

Maybe you want to give a gift that has more personal meaning. If you opt for an “in-kind” (non-cash) gift, it’s possible to transfer investments from your account to theirs so that the funds will offer money now and potentially earn more in the future. You can also sign over a legal title for a vacation home or a beloved family cottage. However, you need to consider if your adult child can afford to maintain the property and pay annual property taxes. There are capital gains tax implications for both of these moves, so you’ll have to understand how much that might be and how you’ll pay that tax bill.

“Imagine gifting real estate as handing over a piece of your life’s work. It’s not just a deed – it’s a legacy,” says Ms. Lucreziano. “Be mindful of all the tax and legal implications to ensure a smooth transition.”

A financial professional can help answer any relevant tax questions and help find the most tax-efficient route to take.

Communication is everything

You might think that giving an adult child or grandchild a large financial gift would bring the family closer together. In truth, gifting is rife with emotional and ethical complexities that many gift-givers are unprepared for – that is, unless they’ve taken time to truly consider what is best for everyone, including themselves.

No matter what form the gift takes, it’s important to have frank and honest conversations with everyone involved. If you have a partner, ensure you’re both on the same page.

Communication is also key between the giver and the receiver. If you want your children to use your hard-earned funds to help pay off their mortgages, say so. Discussing your expectations in advance with your children can be helpful and save some heartache.

What do you do if one child is financially well-off while the other struggles to pay the bills? Do you gift them an equal amount or match the gift to their need? It’s best to ask your children what would help them most.

“Gifting isn’t just about equal distribution. It’s about thoughtful consideration. Your gifts should reflect each person’s unique journey,” says Ms. Lucreziano. “Understand your beneficiaries’ aspirations, fears and needs to make your gift truly meaningful.”

Ultimately, lifetime giving should be about more than avoiding probate costs or taking advantage of tax efficiencies. Done with deliberation and love, giving a large financial gift is about passing on your values and aspirations to the family’s future generations.

“Remember,” says Ms. Lucreziano, “the most effective gift is one that comes with both your wealth and your wisdom.”

Make an appointment with a CIBC advisor today to work out your financial and gift-giving plan.

Advertising feature produced by Globe Content Studio with CIBC. The Globe’s editorial department was not involved.