When you’re deciding how to pass your wealth onto the next generation, there are many factors to consider. In Canada and Alberta, people are increasingly debating whether to gift wealth during their lives or leave it as an inheritance when they pass. Inter vivos gifting versus post-mortem inheritance each has unique benefits and pitfalls. While there’s no universal answer, understanding the legal, financial, and tax implications in Alberta is essential to making the right choice when you’re planning your estate.
At Verhaeghe Law, our Edmonton wills and estates lawyers help clients plan their estates, including how to best pass on their wealth. Based on your specific circumstances, we can help you decide whether to gift your assets, leave them in an inheritance, or use a hybrid approach. To discuss your situation with a legal professional, contact our office today.
What’s the Difference Between Gifting and Inheritance?
The most important difference between gifting and inheritance is the timing at which it’s given. A gift, also sometimes called an inter vivos transfer, takes place while you’re alive. You voluntarily transfer ownership of an asset, such as money, real estate, or investment capital, without receiving repayment from the recipient.
On the other hand, an inheritance is a transfer of assets that takes place after the passing of the owner. Usually, inheritance will be distributed according to the deceased’s will or, if there is no will, according to the laws of intestate Succession in Alberta’s Wills and Succession Act.
When it comes to taxes, Canada has no gift tax. This means that recipients of gifts or inheritances do not pay income tax on them. However, the person who is giving the gift or leaving an inheritance may owe taxes. This is because when you give away certain assets, like vacation property or an investment portfolio, it triggers a deemed disposition. This means that you might owe a capital gains tax based on the asset’s fair market value at the time of transfer. If you have already passed, this tax may be taken out of the value of your estate during probate.
The Pros and Cons of Gifting Wealth During Your Lifetime vs. Leaving an Inheritance
Gifting wealth while you’re alive can have several advantages, both emotional and financial. You will be able to witness the impact of your gift, such as helping your child buy their first home, supporting a relative’s education, or donating to a cause that’s close to your heart.
There are also a variety of estate planning benefits, such as:
- Reducing the size of your estate may lower the probate fees you must pay after passing. It should be noted that Alberta’s probate fees are some of the lowest in Canada already.
- Spread out capital gains tax liability by controlling the timing of deemed dispositions.
- Simplifying estate administration for your heirs by removing complex assets like rental properties or non-registered investments.
- And more
However, it’s important to recognize the risks that can also come with gifting. For example:
- Once you gift an asset, it’s no longer yours. If you give up control of a significant amount of wealth, you will have no legal right to reclaim it should your financial situation change.
- Gifting to minors or transferring income-producing assets might trigger Alberta’s attribution rules, which can create extra tax burdens.
Unlike gifting, leaving an inheritance allows you to control your wealth for life. In many cases, keeping ownership of your assets will allow you to:
- Maintain financial flexibility throughout your retirement
- Update your estate plan or beneficiaries if your situation changes
However, when you pass away, the CRA may treat your assets as if they were sold on the date of your death. In certain cases, this can result in significant capital gains tax, especially for properties or investments that have increased in value.
Wondering About the Right Path For You? Contact Verhaeghe Law Today
Whether it’s better to gift now or leave an inheritance later will depend on your personal goals, your family’s needs, and your financial circumstances. When coming to your decision, you should think about:
- Do you have enough resources to support yourself throughout your retirement?
- Would you trust your beneficiaries with a large gift right now?
- Can you structure your gift to minimize taxes and protect it from future risks?
Our experienced wills and estates lawyers at Verhaeghe Law can analyze your situation to formulate the best solution for you. We can help you reduce potentially lower taxes while preserving some of your financial flexibility.
Verhaeghe Law’s estate planning lawyers in Edmonton can help you weigh your options and craft a personalized strategy for the transfer of your wealth. Contact us today to start planning for your family’s future with confidence.