Transferring wealth during your lifetime

I was reading recently that approximately $30-trillion in assets will be shifting from one generation to the next across North America in the next few decades, according to consulting firm Accenture.

A couple of years ago, I wrote about gifting cash or assets during one’s lifetime as an alternative method of distributing your wealth and possibly avoid taxes at time of death. Though there is no inheritance tax in Canada (the fact some politicians are openly talking about implementing such a tax should all give us pause by the way), assets held at time of death are considered sold and taxes are likely owed, (on gains, rrsps etc.). Separately, many jurisdictions charge probate fees on estates. For these and other reasons, I believe that plans for giving during one’s lifetime are gaining momentum.

There is a lot of good advice from professional financial and estate planners, lawyers and accountants among others to help you with your plans, but here are some main things to consider:

1. Can you afford to give your kids an early inheritance? Make sure your own future is secure (consider sicknesses and emergencies) before considering an early gift.
2. What are the tax consequences of your gift? Make sure the gift make sense from a tax perspective. For instance, generally, cash gifts are tax free and can shift future income to adult children where their marginal rate of tax is likely lower than yours.
3. How much control do you want to have over your gift? Cash gifts are great, but you lose control of the money once it is out of your hands. I was reminded recently that Warren Buffet famously said that he wanted to give his children, “enough money so that they would feel they could do anything, but not so much that they could do nothing.” So, you might want to consider loans of some kind with conditions for instance.
4. If more than one family member is involved, giving equal sums to each might not always be a good plan. Make sure you communicate to all of them why you have done what you done and why you think it is fair. Regrettably, from experience, I can confirm that many a battle erupts after death over such matters, particularly when plans have been been poorly communicated, or not all.
5. What about incremental giving? – start by giving a little and solicit feedback from the beneficiary about what they did with it, etc.

Don't hesitate to consult your pros before you do anything.

As featured on All About Estates Blog where Baker Tilly WM partner, Steven Frye, is a regular contributor.