The way people view legacy is changing. Many parents with an inheritance to pass on choose to make a gift to their children during their lifetime rather than wait. After all, access to property and the cost of living can represent major challenges, and children may need the most help now in achieving their goals.
That said, generosity shouldn't come at the expense of your own financial security. Let's take a look at the best strategies for supporting your children, if possible, while keeping enough money to maintain your standard of living.
Why give during your lifetime rather than leave an inheritance?
For many, waiting until death to transfer assets seems less and less suited to today's reality. Life expectancy is increasing, so we often inherit at an age when our financial situation has already stabilized. On the other hand, giving during your lifetime enables you to step in at key moments in your children's lives.
The challenge of home ownership in Québec
According to a recent study by the Québec Professional Association of Real Estate Brokers (QPAREB), access to home ownership has become considerably more complicated for younger generations. The minimum down payment required to purchase a single-family home has more than doubled in 10 years in almost all regions.
Experience the joy of giving
For parents, the benefit is above all emotional. They get the chance to see the tangible impact of their help, sharing in their children's joy when they receive the keys to a new house or launch a business project. Think of it as a way of strengthening family ties and celebrating shared successes.
Enjoy practical and tax benefits
In Canada, monetary gifts between parents and children are generally tax-free for the recipient. What's more, passing on part of your estate during your lifetime can simplify estate settlement later.
Help your children while maintaining your financial security
Before giving assets during your lifetime, assess your own financial needs. A desire to help should never compromise your financial security.
Primary risks to consider
Loss of essential resources
The worst mistake is giving away so much that you compromise your quality of life during retirement. Don't forget that you could live a very long time, and your needs may increase considerably with age. Residential care, retirement home costs, and medical expenses can represent significant sums that you may need in the future.
Inability to recover funds
Unlike a loan, gifting is final. If your financial situation deteriorates after you've given away part of your estate, you won't be able to get that money back. Health problems, loss of income, high inflation, and other unforeseen events can quickly change your circumstances.
Impact on retirement income
It's important to plan investment withdrawals carefully. For example, withdrawing a significant amount from your RRSPs and non-registered investments for a gift could increase taxable income that year and temporarily reduce access to benefits such as the Guaranteed Income Supplement (GIS).
How to know if you can afford it
This is where planning and testing various scenarios come in. If you give $50,000 today, will you miss that money when you're 85 or 90? Using a financial planning tool or consulting an advisor can provide a clear picture.
Plan your gift with My Game Plan
This intelligent tool enables you to track your withdrawal plans in real time, visualize the impact of your estate decisions, and plan giving by adding an estate goal. Use My Game Plan to take control of your future with complete peace of mind.
Four concrete ways to help your children
Confirm your financial capacity, then explore several possible options. Each will have its own advantages and particularities, namely in terms of tax and legal requirements.
01Give cash
This is the simplest way to give during your lifetime. In Canada, according to the Canada Revenue Agency (CRA) and Revenu Québec, neither the giver nor receiver is usually taxed on cash gifts (as long as the money comes from an already taxed or non-taxable liquid asset, such as a chequing account or TFSA).
02Give property (real estate or land)
Do you own a cottage or land and want to give it to your child? Be careful: The tax office will treat this gift as a sale, even if no money changes hands.
Tax impact: If the property is not your principal residence, you'll have to pay capital gains tax (the difference between the current value and original price paid), even if you don't receive a penny from your child.
Fair market value: If you decide to sell it to your child "at a discount," beware of double taxation!
For example, your cottage is worth $300,000, but you sell it to your son for $200,000.
- Tax authorities will consider it sold at the fair market value of $300,000. You'll pay capital gains tax on this amount (50% of the profit, based on your purchase price).
- Let's say your son then sells the cottage for $350,000 years later. He will also be taxed on the capital gains... based on a purchase price of $200,000.
The gains are essentially taxed twice.
It's recommended that you complete these transactions with a notary.
Property protection
If your child lives with a partner, remember to protect gifted property in case that relationship fails (link in French) in the future. A marriage contract, civil union contract, or cohabitation agreement can stipulate that the gift remain the exclusive property of your child.
03Make a loan
If you'd like to help without giving money away for good, a loan is an excellent option. You can even lend at a very low or zero rate.
Key takeaways: Even within a family, you should get it in writing. To protect all parties and avoid conflicts, we strongly recommend signing a notarized IOU or loan contract. This protects your capital (should you need it later) and avoids conflicts between heirs upon your death. A child's debt to you will, after all, be part of your estate.
04Act as guarantor or invest together
You can also act as guarantor for your child's mortgage, which may help them obtain otherwise inaccessible financing. In effect, you promise to repay the loan if your child is unable to do so.
Another option is to invest together in a multi-generational house or shared duplex. This strategy pools financial resources to access better-quality property while staying close to one other.
Key takeaways: Both options involve considerable risk and require help from a notary to properly structure the agreement. The Autorité des marchés financiers (AMF) warns against the risks associated with surety bonds.
Tax summary
Not all gifts are tax-deductible. The rules are complex, and it's essential to consult official sources.
| Type of gift | Tax rule |
|---|---|
| Cash | Not usually taxed |
| Principal residence | Not usually taxed (due to the principal residence exemption) |
| Second home, cottage, land, or non-registered investment | Deemed capital gains are taxed (as if the property was sold at fair market value) |
For accurate and up-to-date tax information, consult the Canada Revenue Agency and Revenu Québec.
Beyond money: Preserving family relationships
Giving to your children also means managing emotions and expectations. Here are a few tips to ensure a positive experience.
Be fair
If you have several children, helping only one of them may engender feelings of injustice. Fairness doesn't necessarily mean giving the same thing at the same time but rather providing balanced assistance over time.
Example: If you give your eldest $20,000 for a house, consider including an equivalent amount for your youngest in your will.
To ensure balance among heirs, we advise updating your will to reflect these gifts, especially if you wish them to be considered "advances on inheritance."
Consult specialists
Every retirement is unique. Discussing legal and inheritance issues with a notary and any impact on budget and retirement with an advisor is essential for structuring a gift, minimizing taxes, and protecting the family estate. The Chambre des notaires du Québec offers a complete guide to inheritance and succession.
The simple pleasure of giving
Helping your children during your lifetime means being there to see them grow and develop. This powerful gesture can take many forms, not just money!
Be it a real estate project, return to school, or simply a little relief, your support makes a difference. The important thing is to have full knowledge of the facts while protecting your own future so that the gesture remains, from start to finish, a positive experience for the whole family.
