Wealth Strategies: The Great Wealth Transfer - Navigating Intergenerational Gifts in Canada - Part 2

Last month, we discussed how the "Great Wealth Transfer" is upon us, and Canadian families are exploring various strategies to efficiently pass on their assets to the next generation. Whether you're considering gifting during your lifetime or planning for transfers after death, there are several options to consider.

Gifting While Living

Gifts to Minors

While attribution rules apply to income from gifts to related minors, they don't affect capital gains. This creates an opportunity for income splitting when gifting assets that primarily generate capital gains, such as non-dividend-paying stocks or corporate class mutual funds. Additionally, contributing to Registered Education Savings Plans (RESPs) can be a tax-efficient way to support minors' education.

Gifts to Adults

Gifting to adult children or grandchildren can be a tax-efficient wealth-sharing method, as it's not subject to attribution rules. This strategy can help younger generations access important markets like housing or contribute to their registered plans such as RRSPs, TFSAs, and first home savings accounts.

Caution: Be mindful when gifting appreciated assets, as this may trigger capital gains tax for the donor.

Inter Vivos Trusts

For situations where direct gifting isn't ideal, such as beneficiaries with disabilities or unstable financial situations, inter vivos trusts offer more control over asset management and distribution. These trusts can bypass the settlor's estate, avoiding complex settlements and potential estate administration fees.

Strategies for Gifting at Death

Via Will

Having a well-drafted will is crucial to ensure your assets are distributed according to your wishes. Dying intestate (without a will) can lead to unintended consequences and potential conflicts among beneficiaries.

Testamentary Trusts

Similar to inter vivos trusts, testamentary trusts allow for controlled asset distribution after death. These can be particularly useful when ongoing management of assets is important post-death.

Named Beneficiaries

Naming beneficiaries directly on registered plans and insurance contracts can expedite asset transfers and potentially bypass estate administration fees.

Tax-Deferred Rollovers

For registered accounts like RRSPs and RRIFs, the options for transferring assets to children and grandchildren are generally limited.

However, there are some exceptions:

• For financially dependent children/grandchildren with disabilities, tax-deferred rollovers are possible when transferring assets to their own RRSP, RRIF, registered disability savings plan, or registered annuity.
• For financially dependent children/grandchildren without disabilities, the RRSP/RRIF value can be taxed to the child instead of the deceased parent/grandparent. This may result in tax savings if the child has a lower income.

Joint Ownership for Non-Registered Assets:

• It's often used as an estate planning strategy to simplify administration and avoid estate fees.
• However, it comes with risks such as signing authority issues, creditor concerns, and potential conflicts over asset distribution.
• Consulting an estate planning lawyer is strongly recommended when considering joint ownership as a strategy.

Knowledge Transfers: A Crucial Component

While asset transfers are important, don't overlook the value of knowledge transfers. Sharing financial wisdom and connecting younger generations with trusted advisors can be just as valuable as monetary gifts in ensuring long-term financial success.

In conclusion, intergenerational wealth transfers require careful planning and consideration of various strategies. Whether gifting during your lifetime or planning for transfers after death, it's essential to consult with your Milestone Wealth Management advisor and other trusted estate planning professionals to determine the best approach for your family's unique situation.

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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