The practical benefits include potential tax savings, reduced estate management burdens, the opportunity for the next generation to start businesses or invest, and the avoidance of estate administration fees and family conflicts.
In addition to providing financial assistance for homeownership, there is another way that parents can support their children: by giving them an early inheritance. Giving money to loved ones as an early inheritance can be emotionally rewarding and satisfying. It allows you to witness the joy and security it brings to them during your lifetime, rather than leaving it as part of your estate after you pass away.
There are practical benefits to giving an early inheritance as well. Firstly, it can result in potential tax savings. By giving money or assets while you are still alive, you may be able to take advantage of gift tax exemptions or lower tax rates. In Canada, there is a generous lifetime exemption to the payment of taxes on gifts known as the lifetime capital gains exemption (LCGE). By transferring assets to your loved ones earlier, you may be able to take advantage of this exemption and potentially save on taxes.
Another practical benefit is the simplification of your future estate. Real estate and investments can be complex to manage and administer after you pass away. By giving these assets as an early inheritance, you can reduce the burden on your estate and make it easier for your loved ones to handle and distribute your assets. This can also help to avoid potential family conflicts over the estate, as you have already made your intentions clear by giving the assets earlier.
Another advantage of giving an early inheritance is that it can enable the next generation to start businesses or invest, potentially growing the gift over time. By giving money or assets earlier, you are giving your loved ones the opportunity to use it while they are younger and have more time to benefit from it. This can have a positive impact on their financial future and potentially lead to further growth and prosperity.
Furthermore, giving an early inheritance can also help to avoid estate administration taxes, also known as probate fees. When your estate goes through the probate process, there are fees associated with it that can eat into the value of your estate. By giving assets as an early inheritance, you can potentially reduce or eliminate the need for probate, saving money and maintaining privacy.
It is important to note that once a gift is given, you lose control over it. Recipients can use the gift as they see fit, and you have no say in how it is managed or spent. This is why it is crucial to carefully plan and consider your own future financial needs before giving an early inheritance.
There are various options available to ensure the longevity of your gift. For example, you can leave the gift as an annuity, providing regular payments to the recipient. This can help ensure that the gift lasts over time and is not squandered. Another option is to use a trust, which provides added control and protection. With a trust, you can specify how the funds should be used and when they should be distributed, ensuring that your intentions are carried out.
Giving an early inheritance to loved ones can have emotional rewards and practical benefits. It allows you to witness the joy and security it brings to them during your lifetime. The practical benefits include potential tax savings, reduced estate management burdens, the opportunity for the next generation to start businesses or invest, and the avoidance of estate administration fees and family conflicts. However, it requires careful planning to ensure your own future financial needs are met and to choose the best option to protect the longevity of your gift. Planning your estate involves considering how your gift can benefit loved ones over time while respecting your wishes.
Team GEMINI is not a professional estate planner. Readers are encouraged to speak with a licenced estate planner for financial and legal advice. This article is for general information only.
