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How to Give a Living Legacy to Your Children

Oct 29, 2021 | Finances, Retirement

Many of our clients are interested in learning how to best share their prosperity with their children and grandchildren while they’re still alive. It’s becoming more common for Canadians to want to share their wealth early, allowing them to witness the impact of their generosity firsthand, rather than waiting to pass on an inheritance after they’re gone. We call this a “living legacy,” and we have several tips to help you decide if it’s the correct financial route for you to take. 

The Best Financial Gift You Can Give

The good news is that there is no limit on how much money can be given as a gift in Canada. However, we always say that the best gift is the gift of financial literacy and independence, and so our first piece of advice is to think about your gift carefully. How much money are you considering giving, where will the money be coming from, and for what purpose will it be used? These questions will help you determine which option of giving best matches your intentions. 

Ways of Giving Financial Help

There are various ways your generosity can help support your children or your grandchildren. These gifts can be significant sums of money, smaller contributions, or even official loans. You can also choose to provide sums of money directly or specify what the money will be spent on. The route you choose will depend on your unique situation. 

Helping With Education

Many clients like to help with tuition payments for their children or grandchildren. You can help pay for their schooling while they’re in post-secondary education, or it can begin when they are young by helping contribute to Registered Education Savings Plans (RESPs). Each recipient can have contributions of up to $2500 annually until they turn 17. You can also choose to “top up” an RESP; in other words, you would help your family members by assisting them in reaching the maximum yearly limit. The Canadian government will then contribute up to $500 annually to a maximum of $7200. 

Helping With Real Estate

Another way to give a monetary gift is by helping your family purchase real estate. By topping up a down payment to twenty percent of the purchase total, you can help your family avoid paying the extra charge of mortgage default insurance. If your contribution is an outright gift with no strings attached, then your family will not be taxed on the sum. Whether you pay tax on the amount or not will depend on where you withdraw your money (we’ll cover living legacies and taxes later). 

Support Savings Initiatives

If you want to be generous but don’t feel comfortable giving a large sum of money all at once to your family, there are ways to give smaller financial gifts that will still make an impact. One popular gift our clients often like to give is matching their children’s or grandchildren’s Tax-Free Savings Account (TFSA) contributions to help them meet their yearly maximum. You could also choose to give small monetary gifts at milestone events, such as weddings, births, graduations, or family vacations. 

Living Legacies and Canadian Taxes

When you give a monetary gift to a child or grandchild, the Canada Revenue Agency (CRA) determines its fair market value right before it is gifted. While your child or grandchild won’t pay tax on the sum, you might be required to, depending on the source.

Capital Gains Tax

Gifts of mutual funds, stocks, or real estate assets that have already gained value will be subject to a capital gains tax, which are fully taxable to you in the year you gave the gift. 

RRSP Withdrawals

If your gift is coming from a Registered Retirement Savings Plan (RRSP), then the amount withdrawn will be subject to a withholding tax between 10 and 30 percent, depending on the total of the withdrawal. RRSP withdrawals are considered income and could increase your total taxable income for that year. You’ll want to consider this total and your tax bracket with your financial advisor before making the gift arrangements. 

Official Loans

An alternative to giving a gift of money is to give a formal loan. Some of our clients will loan their relatives money at a low interest rate with no required set payments. They’ll decide the amount to lend, declare a purpose for the funds, and draft a deadline for repayment. We recommend our clients discuss this option in detail with their family members (including spouses if the relative is married) to ensure everyone agrees with the process. It is also wise to consult a financial and/or legal professional before providing loans to family members. 

Financial Advice for Living Legacies in Edmonton

Sharing your prosperity with your family and loved ones is admirable. At Regan Schiller & Associates Private Wealth Management, we always recommend that our clients sit down with our retirement planners to make sure that both you and your loved ones receive the greatest benefit from your generosity. If you have questions about living legacies or inheritances, request an appointment with our financial professionals today. 

This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities.  Regan Schiller is solely responsible for its content. For more information on this topic or any other financial matter, please contact a Consultant from Regan Schiller & Associates Private Wealth Management.