Wealth Strategies: The Great Wealth Transfer - Navigating Intergenerational Gifts in Canada - Part 1

Milestone Wealth Management Ltd. - Sep 26, 2024

Wealth Strategies

As Canada stands on the cusp of its largest intergenerational wealth transfer in history, with an estimated $1 trillion set to change hands by 2026, families are grappling with the complexities of passing down assets. This monumental shift, driven by retiring baby boomers, is reshaping financial landscapes and family dynamics across the nation.

The Rise of "Gifting While Living"

In today's challenging economic climate, many parents and grandparents are opting to transfer wealth during their lifetime rather than waiting until death. This trend, known as "gifting while living," is gaining traction as younger generations face financial pressures from high inflation and rising borrowing costs.

Navigating the Attribution Rules

When considering intergenerational gifts, it's crucial to understand the attribution rules set by the Income Tax Act. These rules are designed to prevent certain income-splitting transactions and can significantly impact the tax implications of gifts.

Key points to remember:

Gifts to minors: Income from gifts to related minors is generally taxed in the hands of the giftor until the recipient turns 18.
Capital gains: Capital gains earned after the transfer are typically taxed to the recipient, regardless of age.
Loans: Low or no-interest loans to related adults may result in income attribution to the lender.

Weighing the Options: Gifts While Living vs. Gifts at Death

Both gifting strategies have their merits and drawbacks. Here's a brief comparison:

Gifts While Living:

Pros: Witness family enjoyment, clarify intentions, potential for income splitting, help with current cost of living, and simplify estate planning.
Cons: May deplete assets needed for future care, potential tax acceleration, loss of control.

Gifts at Death:

Pros: Retain assets for retirement needs, simplify distribution, potential tax deferral.
Cons: Doesn't address immediate financial needs of younger generations, may lead to higher estate taxes and fees.

Looking Ahead

As families navigate this complex landscape, it's clear that no one-size-fits-all solution exists. The decision to gift while living or at death depends on various factors, including family dynamics, financial circumstances, and long-term goals. In part two of this series, we'll explore specific strategies for wealth transfer, both during life and after death, and discuss how knowledge transfers can play a crucial role in this process. Remember, when considering any significant financial decisions, it's always wise to consult with your Milestone Wealth Management advisor or other trusted professionals who can provide guidance tailored to your unique situation.

Opinions and estimates are written as of the date of this report and may change without notice. Any commentaries, reports or other content are provided for your information only and are not considered investment advice. Readers should not act on this information without first consulting Milestone, their investment advisor, tax advisor, financial planner or lawyer. This communication is intended for Canadian residents only and does not constitute as an offer or solicitation by anyone in any jurisdiction in which such an offer is not allowed.

Source: Advisor.ca