Three out of four Canadian baby boomers say they would either pass or give a portion of an inheritance they received to their children or grandchildren if they were to receive one immediately, according to a new survey on gifting that Canadian Imperial Bank of Commerce released on Thursday.
Gifting money during a person’s lifetime can provide Canadians with the opportunity to help adult children as they move out, launch their careers, or buy a home, while offering opportunities for tax and estate planning as well, says Jamie Golombek, managing director of tax and estate planning with the CIBC’s wealth strategies group.
“When you gift during your lifetime, you’re able to enjoy seeing your beneficiaries use the money while at the same time reaping potential tax-savings opportunities,” Golombek says. “In addition, by gifting assets before you die, these assets will not be subject to probate fees because they will not be part of your estate.”
According to the CIBC gifting poll, 74% of parents aged 55 and over say they would pay all or part of an inheritance, received today, to their children or grandchildren. During the next decade, Canadian baby boomers are expected to inherit an estimated $750 billion, according to a CIBC Capital Markets report released last year.
However, gifts given to children and grandchildren during a lifetime have the potential to cause conflict within a family if they’re not handled with care, Golombek suggests.
For example, according to the poll, 56% of boomer parents who have given or plan to give a significant gift of an early inheritance say they’d feel obligated to give to every child or grandchild, although not necessarily the same amount.
“Sitting down together with an advisor can help you sidestep potential familial issues and craft a well-thought-out, tax-efficient plan for gifting money or assets,” Golombek says.
The CIBC poll found that 76% of Canadian parents with a child 18 years or older say they would give their kids a financial boost to launch their lives, with almost half of them giving an average of about $24,000.
The poll also found that more than two-thirds of Canadians either misunderstood or said they did not know the tax and other financial implications of making gifts.
“Unlike in the U.S., we don’t have any kind of gift tax [in Canada],” Golombek says, “which means if you have what’s called ‘never money’ — money you’ll never spend in your lifetime — it’s worth considering making a financial gift while you’re alive to help your kids get started in life.”
Gifting cash in Canada has no tax implications, however gifting appreciated property may trigger capital gains tax, he notes.
Gifting strategies may include giving money to family members in lower tax brackets; gifting assets during a lifetime to avoid provincial probate taxes; and helping children buy a home or pay a mortgage via a secured mortgage.
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