Despite the global pandemic, housing prices in major Canadian metropolitan hot spots continue to rise. While many have been struck by the fear of job uncertainty or an indefinite layoff and are thus in no position to purchase real estate, for others, the pandemic has induced the need for more space. As such, the market remains strong and prices have not significantly fallen in the country’s most desirable areas. Even with a modest correction to the housing market, prices are still far out of reach for many millennials.

In a study titled “Straddling the Gap,” the non-profit group Generation Squeeze found that in 1976, it took baby boomers (“boomers”) an average of five years to save for a 20 percent down payment on a home. In stark contrast, it takes the average millennial 13 years to save for a similar down payment today. Income growth has remained relatively flat in comparison to the ever-increasing cost of real estate. In an effort to get their children in the market, a significant percentage of boomers are opting to transfer wealth during their lifetime by way of a “living inheritance” in lieu of the more traditional testamentary inheritance.

Sotheby’s International Realty Canada’s latest Generational Trend Report revealed that one-third of boomers, and 36 percent of boomers in the Vancouver region, intend to gift their children with living inheritances for the sole purpose of buying real estate. A similar percentage of boomers hope to bequeath money for real estate purchases in their wills in addition to living inheritances. Almost 50 percent of boomers who plan to provide financial assistance believe that their children would not be able to purchase a home without their help.

From an estate planning perspective, there are significant tax benefits that arise from a living inheritance. As there are no taxes on gifts of cash in Canada, many people prefer to transfer wealth – or a segment of it – by way of a living inheritance. For example, a parent can gift their child $100,000 and this would not be reportable from a tax standpoint. However, it must be noted that a living transfer of property or a stock portfolio could trigger unwelcome capital gains taxes.

Prior to assisting with a home purchase, parents should consider their estate plans, any potential tax implications, and their current financial situation in order to ensure that this transfer of wealth will not compromise their retirement plans.

Thanks for reading!

Ian Hull and Tori Joseph