The sum of your life accomplishments can often be boiled down to what you leave behind for future generations. For many Canadians, the entire purpose of accumulating wealth is to ensure that the next generation has the best chance for a bright and prosperous future.
If you also feel the same way but are worried about wealth transfer complexities and other tax implications of gifting assets during your lifetime, you have come to the right place to get all the answers you need and put those doubts to rest!
In this guide, we will look at all that you need to know about the benefits of giving early versus giving at death, and which option is best based on your needs and circumstances.
Understanding Asset Gifting & Estate Planning
What is asset gifting? Under Canadian tax laws, any asset or personal property that you voluntarily transfer to another person, with the intent of relinquishing all dominion and control over that asset, is considered a gift.
A gift also has to be given without any obligations and consideration and once given it can’t be taken back. There is also no limit as to how much you can ‘gift’ someone. You can choose to gift a few hundred dollars or a small fortune. As long as it qualifies as a gift it is considered tax-free.
Gifts can be given in the form of cash, real estate, stocks, vehicles, jewelry, and other types of capital and/or investment assets.
Gifting assets can also have a direct impact on your estate. In some cases, it can be beneficial for the estate as it can help lower estate administration tax and reduce the size of assets that will have to be managed by the estate after your death. In other instances, it can also be detrimental, especially, if it coincides with your financial goals and retirement planning objectives.
So, before deciding on whether to give during your lifetime or after, it is first essential to understand and assess your financial situation. Remember, you should always put your potential needs first and that means determining how much money you would need to live out your desired retirement lifestyle.
The best way to do this is to consolidate a comprehensive financial plan that determines whether you will outlive your wealth and by how much. This will give you a fair idea of how much of your wealth you can part with during your lifetime without it impacting your future retirement lifestyle and healthcare costs.
The Benefits Of Gifting Assets To Family Members
Let’s take a look at the top benefits of gifting assets to family members during your lifetime.
Offers Support & Security To Your Loved Ones
If your children, or grandchildren, have come of age or are at a stage of their life where they can benefit from financial assistance to start up a business, buy a home, or pay for university, it can be advantageous to give them their inheritance, or part of their inheritance, early. Offering them the financial support and security they need when they need it can not only mean a lot to them but it can also be quite rewarding for you to see them make the best use of your wealth.
Brings Joy & Satisfaction
By giving early you get the opportunity to witness your family enjoy the wealth you were to leave behind. Whether it is a sum of cash, property, or other types of assets, giving early brings joy and satisfaction as you get to see your loved ones enjoy their inheritance and live out their dreams all during your lifetime.
Allows For Certain Tax Benefits
Gifting assets during your lifetime can also have certain tax benefits. As gifts are considered tax-free, gifting assets such as stocks and equity early can mean that those investments are no longer yours and won’t count towards your income, which essentially lowers the taxes you have to pay.
If your children are still in their late teens, giving them equity assets early means that they will likely have to pay no tax on those assets, as their income will likely be much lower. This can essentially lead to considerable tax savings in the long run.
That is why gifting assets to spouses and children is often recommended by financial advisors as it can help bring down the taxes you have to pay and make managing your estate a lot easier.
Reduces The Size Of Your Estate Resulting In Lower Probate Fees
Gifting assets early can essentially reduce the size of the estate you were to leave behind at death. Reducing estate assets can have several benefits of its own. It can make the management of existing estate assets a lot easier. It can also reduce the probate fees and estate administration taxes that would have to be paid out when you die.
Reduces The Chances Of Family Conflicts & Disputes
By giving early you are essentially preventing the possibility of any future family disputes or conflicts. Even if you have a will, there is no guarantee that disputes will not arise after your death. By gifting assets to family members during your lifetime there is no cause for any disputes or family rifts. This can result in better family harmony and prevent bad blood from destroying family bonds.
Giving Early Vs. Giving At Death - Which Is Best?
There are advantages and drawbacks to both. Deciding on which one is the best path for you requires diligent financial planning and a deep understanding of how wealth preservation works. Therefore, it is highly recommended that you speak to a financial advisor or wealth management expert at Eastport Financial Groupbefore deciding.
Our consultants can advise you on the best path forward that aligns with your current financial situation, future goals, and existing family dynamics. We can also assist with wealth preservation, asset protection, and succession planning strategies to safeguard you and your family’s financial future.
Give us a call at 1 902 474 5433 to learn more!
