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Financial gifts: Everything you need to know before helping your loved ones financially

From taxes to family tension around the inheritance, does your plan cover everything?
Branch Manager Jeremy Hendrikx from Island Savings says there are many strategies available to help loved ones feel more secure, while managing your own financial needs.

Approaching retirement is undoubtedly an exciting time for many, as their decades-long journey of diligent savings and hard work is rewarded with new and exciting pursuits. However, over the past few years, the feeling of excitement has been dampened by economic uncertainty around interest rates, inflation and housing markets. This is especially true for those who are balancing the desire to help their children get ahead financially, while also ensuring they have their retirement plans well in hand.

“Many of my members nearing retirement age have saved carefully and spent wisely, so they’re not necessarily worried about their own financial future. But they’re worried about their kids,” says Branch Manager Jeremy Hendrikx from Island Savings.

“There are a lot of different strategies we can use to help your loved ones feel more secure, while managing tax considerations and your own financial needs. The challenge becomes finding ways to help your children get ahead without sacrificing the years and decades of hard work you’ve invested into their own financial future.”

Leaving a lasting legacy

  • Do you have enough? After getting an accurate picture of your current and future income and expenses, your advisor can project whether you’re likely to have enough savings to last into your 90s. “If there’s a shortfall, sometimes members will say ‘I’m not going to live that long.’ But what if you do? Will you ask your kids for money?” Hendrikx says. “If legacy is important to you, you’ll need savings leftover after you pass on. But sometimes members get so worried about their legacy that they cut back on their own quality of life. As an advisor, sometimes we have to tell our members to spend.”
  • Make sure you have an up-to-date beneficiary named: Savings in registered accounts (like RRSPs or RRIFs) can avoid probate and pass directly to the named beneficiary upon your passing. That means money passes to your loved ones faster, without getting caught up in paperwork. “All non-registered assets must go through the legal process of probate, which can be avoided if you pass on those assets before you die.” Hendrikx says.
  • Timing is everything: Should you give money to loved ones while you’re still alive, or wait until you’ve passed on? Leaving money in the estate takes away some of the guesswork, but you won’t get to see your loved ones enjoy it. If your children are struggling to buy a home now, you may be able to help with the down payment. There are also tax implications — spreading out gifts over a number of years can reduce the income taxes for you and your beneficiaries. “Your primary residence is exempt from capital gains, but secondary homes are not. However, gifting a rental property while you’re alive can have benefits — you can’t sell the property to your child for a dollar, but you may be able to pass it along at a reduced price,” Hendrikx says.
  • Your legacy isn’t just money: Modern blended families can make distributing your financial legacy more challenging, and may mean that family conflict is part of the legacy you leave behind. “Your financial advisor may have strategies to help reduce that tension, but the most important thing is to communicate your wishes with your family. Sometimes having a professional in the room can help keep those family meetings on track.”

Every person is different, and that means every financial plan needs to be unique. A solid financial plan that considers your future income and projected spending can help you decide if you can afford to make your desired gift without impacting your desired lifestyle.