As we age: Should you share the wealth?

Estate planning a touchy topic everyone has to face

My wife’s mother recently asked me for financial advice. She has some investments from the sale of a home and cottage several years ago and wondered if she should keep her money in cash investments or start giving it to her children.

As the husband of one of her children, I was a bit conflicted.

While a few elderly people have personal tax and financial advisers, most do not.  If anyone in the family breaches the subject of money, it can appear self-serving or offensive and lead to family tensions. Estate planning done over Mother’s Day dinner with all of the opinions in the family present is risky business.

There are some simple things to keep in mind when it comes to estate planning. You don’t know what tomorrow might bring, so you have to maintain some financial independence. It doesn’t take long in an acute-care hospital or home to run up substantial costs, so there need not be any rush to dispose of assets.

Many elderly worry about estate taxes, believing if they give things to their children early, they’ll reduce taxes upon death. But, in fact, in Canada, there is no direct tax on estates. There is a probate fee in most provinces, around two per cent of the estate value, and there are situations where capital gains taxes can be applied.

Upon death, the assets that make up an estate are deemed to have been sold or cashed out. For example, any funds in a RRIF or RRSP are rolled into income for that year and subject to taxes. Any stocks or real estate that are not a prime residence are deemed to have been sold at fair market value, even if they are passed along, in a will, to anyone other than a spouse. If that fair market value is higher than the original cost of the properties, then there is a capital gains tax on the difference.

It’s important to note that there is no tax on a principal residence, so a home can be passed into the estate, or on to a child or other relative, with no capital gains taxes applying.

It’s important for the elderly to understand this concept so that they can determine when to begin disbursing money to family members or if they need to do so at all.  In other words, unless there is some complexity to their asset mix (in which case they usually have some financial advisors to help them), there is no tax advantage to early distribution and no tax penalty to an estate.

There are, of course, advantages to family members if unneeded financial assets can be distributed early and perhaps lighten their own mortgage or debt loads. Again, in Canada, you can give away as much money as you wish in a year, to anyone you wish, not just relatives, with no tax implications for either the giver or receiver.

Should you share the wealth? Once you have taken into account what money you might need to support your lifestyle, and perhaps account for some long-term care later in life, if there’s still money to spare, then it’s really a personal decision, not one that should be driven by tax fears. For the majority, such decisions will be fairly simple and not necessitate much technical advice. But if you have items that might have a capital gains issue, then it is always best to get some professional advice.

And you might want to avoid son-in-laws.

Graham Hookey writes on education, parenting and eldercare (