Living Inheritance in Canada: What You Need to Know

When most people think of inheritance, they often picture assets passed down after someone has passed away. However, there is a growing trend in Canada of living inheritance, where individuals gift assets to loved ones while they are still alive. This can be a meaningful and strategic way to share wealth and help family members in need, while also offering a sense of fulfillment for the giver.

In this blog, we’ll explore what living inheritance is, why it’s becoming more popular, and the key considerations to keep in mind.

What Is a Living Inheritance?

A living inheritance is a financial gift given during the lifetime of the benefactor, rather than through a will after death. This can take many forms, including:

• Cash gifts to children or grandchildren for major life expenses (such as education, buying a home, or starting a business).

• Transferring property or assets.

• Covering healthcare or caregiving costs for family members.

By sharing wealth during their lifetime, benefactors can see their loved ones enjoy the benefits of the gift and offer assistance during crucial times in their lives.

Why Is Living Inheritance Gaining Popularity?

Several factors are contributing to the rise of living inheritance in Canada:

• Immediate Benefit: Unlike traditional inheritance, where assets are passed on after death, living inheritance allows the benefactor to witness how their gifts are being used and appreciated in real time. This can strengthen family bonds and ensure that funds or assets are used in the way the benefactor intended.

• Minimizing Estate Complexities: By gifting assets early, benefactors can reduce the complexity of their estate, potentially lowering the risk of disputes among heirs and simplifying the process of estate settlement.

How Does Living Inheritance Work?

While the idea of gifting assets may seem straightforward, there are important financial and legal considerations to keep in mind when giving a living inheritance:

• Consult a Financial Planner or Tax Advisor: Although Canada does not have a gift tax, there can still be tax implications. For example, if you gift a property, capital gains tax may apply on any appreciated value. Consulting a financial planner can help navigate potential tax consequences and ensure the transfer is beneficial for both parties.

• Structuring the Gift: Depending on the size and type of the gift, it’s important to structure it properly. For large gifts, some families may choose to set up a trust or other legal structure to manage the distribution of funds over time. This can provide added protection and peace of mind for both the benefactor and recipient.

• Documenting the Gift: Even within families, it’s crucial to document significant gifts. This can prevent misunderstandings or disputes later on, especially if the benefactor plans to leave other assets to different beneficiaries after their passing.

• Equalizing the Estate: If one child or family member receives a significant living inheritance, it’s worth considering how this will impact the division of assets in the future. Benefactors often adjust their wills to account for these gifts to ensure fairness among beneficiaries.

Key Benefits of a Living Inheritance

• Family Support: Providing financial assistance when your loved ones need it most can be incredibly rewarding.

• Flexibility: You have control over how, when, and to whom you give, without the restrictions or limitations that may arise after death.

• Avoid Probate: By gifting assets before death, benefactors can possibly help their loved ones avoid probate, which can be a lengthy and expensive process.

Potential Challenges

While there are many advantages to living inheritance, there are also potential challenges:

• Financial Stability: Gifting large sums of money or assets can impact your own financial future. It’s important to ensure you have sufficient resources for your own retirement and healthcare needs before making significant gifts.

• Family Expectations: Once a living inheritance is given to one family member, others may expect similar treatment. Open communication is key to managing expectations.

Conclusion

A living inheritance can be a powerful way to share your wealth with your loved ones during your lifetime. With careful planning and proper advice, it can be a tax-efficient and emotionally rewarding strategy. If you're considering this option, it’s wise to consult with a financial advisor or estate planning professional to ensure that both you and your loved ones benefit fully, without unexpected consequences.

By planning ahead you can enjoy the satisfaction of helping your family now and leave a lasting legacy for the future.