Discover the advantages of gifting assets during your lifetime

What’s the difference between gifting while living and traditional inheritance?

When a person dies, the succession – a process and a set of rules – governs how their property is transferred, whether they have a will or not. The receivers of assets are the beneficiaries of what is known as traditional inheritance.

The rules are used to determine:

• The laws that apply to the estate
• The conditions that must be met to be considered an heir
• The conditions for the transfer of estate assets
• The rights of certain creditors

If a person dies without leaving a will, what happens to their estate depends on the province or territory in which they lived. If there’s no will in Quebec, for example, the Civil Code of Quebec governs the succession process, called legal or intestate succession (external link). The heirs collectively act as liquidators, unless they appoint someone to the role. 

When a person decides to transfer an asset as a gift during their lifetime, the ownership of the property is transferred to the recipient without any payment. However, there are specific rules for these gifts, so it’s advisable to consult a tax professional to ensure proper completion of the transaction.

What are the benefits of gifting while living? 

There are several potential benefits to gifting assets during your lifetime, including:

• Supporting your loved ones: A gift could help your grandchildren pay for university or your children buy their first home.
• Seeing the impact of your gift: Gifting while living allows you to share in your family’s joy. If you’re gifting a sum of money to help a loved one achieve one of their dreams, like taking a trip or buying a property abroad, you get to celebrate with them. You might also want to pass on cherished possessions, such as art or jewellery, so your family can start enjoying them immediately.
• Simplifying estate administration for your heirs: Not everyone has the skills or the desire to manage major assets. Selling a property before you die and giving the proceeds directly to your loved ones means they won’t be tasked with taking on your rental property.

 

• Ensuring your wishes are respected: Making a gift during your lifetime can offer peace of mind that your assets are being dispatched to the person you intended. 
• Positive tax implications: In addition to having a positive impact on others, donations to charity may entitle you to a tax credit for charitable donations (external link) at the provincial or territorial levels and the federal levels.

How much can you give during your lifetime? 

You can give as much as you want; there’s no law restricting gifts made during your lifetime to your heirs. However, it’s important to carefully consider whether gifting while living will be truly beneficial to you. Don’t hesitate to speak with your financial advisor to determine whether this option is the right one for you.

Keep in mind that the tax consequences may vary depending on what you want to give. Here are a few examples:

• Money: Cash gifts for either the giver or the receiver aren’t taxed.
• Real-estate property: You won’t need to pay tax on any capital gains if you are gifting your principal residence. If you want to gift your lakeside cottage or another investment property, however, think it over carefully – capital gains on second homes are taxable. 
• Registered Retirement Savings Plan (RRSP): If you want to withdraw funds from your RRSP to make a cash gift to a family member, the money you take out will be taxable.
• Tax-Free Savings Account (TFSA): You can withdraw money from your TFSA and gift it to your heirs during your lifetime without being taxed.
• Tax-Free First Home Savings Account (FHSA): If you want to take out funds from your FHSA to make a cash gift, your withdrawal will be taxable.
• Non-registered investments: As a general rule, capital gains on non-registered investments are taxable, even if your intention is to gift the money.

What should you consider before gifting while living? 

Why do you want to do it?

You might be compelled to help your children by gifting them a home or by selling some investments to give them the money. How you manage your estate is up to you. That said, it’s a good idea to talk over possible scenarios beforehand with your financial advisor to ensure that gifting while living won’t negatively impact your other financial objectives.

When should you start?

There’s no recommended age for gifting assets. People who choose to do so usually start when they have a family, a fairly established estate or if they’re sick. It’s important to keep your other priorities, such as retirement planning, in mind. It’s common to begin considering gifting while living during the estate planning process, but it may happen earlier, too – for example, if an entrepreneur wants to transfer ownership of their business.

How will it affect your finances?

Before transferring your assets to the people you love, plan your retirement and think about other aspects of your future. This can’t be overstated: you need to take care of yourself before you can take care of others.

How do you implement gifting assets during your lifetime? 

Draw up a legal document

This contract will specify where the gifted asset came from and its date of transfer, and applies to all assets given during your lifetime (except gifts of movable property such as jewellery, vehicles or furniture). If you write down your gift in an unofficial document, it can be declared as null and your heirs could contest it after your death.

Think ahead and make a will

It would be difficult to pass on everything you own during your lifetime, so it’s wise to write down your final wishes in a formal will. A lawyer or notary can help you make a plan for what possessions and assets should go to whom.

Speak with your financial advisor

Once you’ve settled on gifting while living, make an appointment with your financial advisor. They will guide you through the process and determine how the gift will affect your financial situation.

Get help from experts

To ensure that your strategy matches your situation, consult the right experts. Your notary, lawyer and tax specialist can help you understand and follow applicable laws.