In last week’s blog, I focused on problems that can arise with inter vivos gifts, namely the complications associated with the delivery requirement. This week, on somewhat of a more positive note, I turn to some of the benefits of distributing wealth prior to death.
Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management, recently penned an article in the Financial Post that highlights the tax benefits associated with distributing wealth to family, friends and charity by way of gift instead of through a testamentary bequest. He writes that “… retaining excess assets beyond a certain level could mean you are paying more taxes than necessary while you are alive, reducing the potential size of your estate available for loved ones or charity.”
The author goes on to give the examples of a testator leaving money to adult children who have mortgages or those who are in a lower tax bracket. In those situations, it would likely be more beneficial to gift those assets now instead of waiting until death. In the case of children with mortgages, by giving them assets now, it allows them to reduce the amount of non-deductible interest being paid to their mortgage provider. In the case of children that are in a lower tax bracket than the donor/testator, by gifting them “excess investible assets” prior to death, it allows those assets to be taxed at their lower rate instead of the higher one they were being taxed at before.
The other important point made in the article is that there is no “gift tax” in Canada as there exists in the United States. It surprises me how often people assume that large gifts will be taxed in the same way they are south of the border. In Canada, gifts are tax-free regardless of their size. The important exception to that statement, however, are gifts of property that have increased in value (i.e. vacation property or appreciated stocks). In those situations, you can become liable for capital gains at the time of gifting. Giving cash or other property that has a stationary value, however, is tax neutral to both the giver and the recipient.
Taking all of this into consideration, you might want to look at the gifts contained in your will and think about whether or not they would be more economical or advantageous as gifts made during your lifetime. The other benefit of inter vivos gifting, of course, is that you get to see how much it helps and is appreciated while you are still alive.
Thanks for reading!