This week, we’re talking about gifting money.
Should you wait till you’re dead to gift money?
It’s an important question, and one that everyone should be thinking about. We’ll break down the financial implications of gifting money before you pass, as well as some other considerations.
With all the talk of estate planning and wills lately, it’s easy to forget that there are plenty of ways to help your loved ones without going through such a formal process. One way is by gifting money while you’re still alive.
But what are the benefits and drawbacks of this approach? Learn more in this week’s episode
Hey there. Welcome back to the Heart of Your Money podcast. So more and more often, I’m getting asked the question, should you wait till you’re dead to gift money, meaning an early inheritance or not? I’ve been thinking about this one a lot because it’s a conversation around the table in my office and I thought it might be something that we should talk about because it might feel a little awkward talking about gifting money before you’re dead. So let’s dive into it.
Should you wait till you’re dead to gift?
One of the first things to consider about is if gifting makes sense and if it doesn’t make sense. I think the first thing to make sure of is that by giving an early inheritance, gifting while you’re live, you need to make sure that there’s enough money for you to live and that it will not jeopardize your own financial security.
That is the number one thing. Put the oxygen mask on yourself, just like the airplane instructions tell you before you can help anybody else. You’re gonna have to do some planning, get some expert advice, and you’re gonna have to really explore that and you need to make sure that you are financially secure before you give any thought to gifting.
So when does it make sense? I’m gonna give you, a couple of examples.
The first one is – after you’ve made sure that you’re completely financially secure- is the reward of seeing your loved ones put the money to good use and I’m thinking of a specific example, current case. So in this case, a widow needs to sell the family acreage and the acreage is worth 1.5 million, probably more. She does not need the proceeds to live off of because there is wealth in personal investments, RIFs and tax-free savings accounts.
That is not an issue, when that acreage sells, that 1.5 million or more will eventually become part of her estate when she passes on. So in that case, it’s gonna just go to the estate and become probate fees on this amount, including all the other assets that there are.
So in this case, there is an adult daughter who’s over 50, and she could benefit from an early inheritance because she has no retirement savings. This daughter is a hard worker – has a job- no issues there whatsoever. Times are tight, she doesn’t have any retirement savings and has a mortgage. So here’s an opportunity to use some of that money from an early inheritance to create a future pension for the daughter while the widow is alive. That’s peace of mind.
So I know that this widow is gonna feel good, and knowing that, okay, safe and secure, I’ve taken care of my daughter. I know where that money has gone rather than just a lump sum in a will after. She actually gets to know the peace of mind, putting her head on her pillow at night and knowing “Okay, I know she’s okay.”
So that’s a great estate tax move and a peace of mind move. So I really like that one. Being able to enjoy the gift while you’re alive. Now the other one is also that tax conversation. That is when with a well thought out plan, expert advice – tax advice. You’ve got your troops, your financial planner in there, knowing that you’re gonna be okay financially on your own. Then how do I pay the least amount of tax to CRA?
Sometimes gifting is the answer. So potentially to avoid high probate fees and those taxes, and of course, you’re gonna need some advice to do that.
Another one is it’s also going to avoid another problem. I guess this is turned into a bit of a benefit reason, is that you’re going to avoid any family conflict after you’re gone.
So sometimes there is family conflict in the settling of an estate or just the emotions among people – we all hear the stories. By being alive and being able to still have some control over that gifting, it sometimes eliminates the conflict.
It is so important to find that expert advice before you gift, and you’re gonna have to find that financial planner because they can navigate
- the emotions
- the tax
- the steps
And they’re gonna know whether or not this is something you should do and have those conversations. They can pull in the troops – they’ve got the accountant.
It all depends. It can be a very simple case or it can be a very complicated case, meaning there’s lots of real estate or there’s business. But whatever the case is, you need to find a financial planner to be the coach of that conversation. You’re gonna need them to do all the work and organize it for you, and it shouldn’t be a last-minute decision.
So this is something that you should think about planning a little bit further in advance.
So to just wrap it up and keep this short, I want you to know that I think that if it’s well planned and thought out – it is a great thing to plan out your early inheritance.
If you’ve taken care of all the what-ifs – making sure you are financially secure- then you can start going through and think about seeing the gift while you’re alive.
I think it’s a great thing to do, start the conversation and maybe during that conversation you find out maybe it’s not a great thing to do right now, and you can wait, but at least you’ve explored it. So I encourage you to find your financial planner. If this is relevant to you, start talking about it. That’s it.
Do you have any questions? Send me a note.
Don’t forget. If you need, you can check our website, astrafinancial.ca for show notes or send me a note with any questions or comments. I’d love to hear from you.
Till next time, I’m Zena.