For the first time in history, there are more Canadians over 65 years old than under 15—by 2036, one in four will be in their senior years, according to the Canadian Institutes of Health Research.
As part of these shifting demographics, trillions of dollars are expected to change hands from one generation to the next as part of “The Great Wealth Transfer.” This leads to two pressing questions:
For many, these concerns have started the conversation of “gifting while living” rather than more traditional inheritance mechanisms that flow through your estate, will, and legal systems.
Today, we’ll uncover why.
Before we discuss the reasons, benefits, and strategies for gifting in life, it’s important to be aware of attribution laws and income splitting in Canada when making in-family asset transfers.
The federal Income Tax Act introduced these rules to discourage aggressive tax avoidance strategies, and while they’ve certainly been effective, there are still plenty of viable ways to reduce your household’s overall tax burden.
Understanding how these attribution laws interact with in-family transfers is crucial for avoiding unexpected liabilities and properly structuring your gifting plan to maximize benefits.
The reality is that the cost of living continues to outpace disposable income, with Oxford Economics pointing out housing affordability as being a leading culprit. In their report, it’s suggested that the Housing Affordability Index (“HAI”) will stay above the affordability range until 2035.
Job markets are also becoming a point of contention, as recent Gen X graduates are facing the highest unemployment rates in over two decades, excluding the pandemic.
Taken together, the younger generation is facing challenges they aren’t financially equipped to deal with—and parents are making up for the shortfall, with nearly half of Canadians 50 years old and above providing living gifts to their children.
There are pros and cons to making living—otherwise known as inter vivos—gifts, and the same can be said for traditional inheritance through your estate:
|
Gifts while living |
|
|
Pros |
Cons |
|
|
|
Gifts in death |
|
|
Pros |
Cons |
|
|
1. Subject to the attribution rules, particularly involving minors and trusts.
2. Examples include Old Age Security (OAS) benefits and the Age Credit for the gifting parent or grandparent.
3. Refers to capital gains taxes triggered by transferring assets at death versus while living.
4. Examples include Old Age Security (OAS) benefits and the Age Credit for the gifting parent or grandparent.
One of the most attractive features of giving while alive and well is being able to actually see the difference you’re making in your family’s life.
For many, the idea of leaving behind an inheritance is about crafting an enduring legacy—by doing it while you’re still alive to experience it, you don’t have to hope it all works out; you can actively make sure it does.
Not only can this be fulfilling, but it can also lead to greater wealth preservation.
Research put forward by Nasdaq suggests that wealthy families aren’t typically successful at maintaining their success from one generation to the next—70% will lose it from parent to child, and 90% see it disappear by the time it’s passed down to grandchildren once again.
There are plenty of interconnected factors leading to this shocking trend, but among them, the leading causes mostly revolve around poor communication, unclear expectations, and a lack of preparation.
The idea carries weight. After decades of building wealth, the giftor can easily appreciate the effort that went into their success—they know how every dollar was earned. Naturally, the recipient most likely won’t have that same personal understanding of the work behind the wealth.
The fundamental mismatch is based on time, not work ethic. The older generation has an entire career and life’s worth of experience managing finances behind them. The younger generation simply hasn’t had the same opportunity quite yet.
The good news is that any lack of experience can be overcome by being an active participant in getting the next generation up to speed.
By making gifts while you’re still there to coach recipients, you can pass along more than just wealth—you can impart the wisdom, values, and strategies to help make it last.
Silence breeds distrust; open dialogue builds it. Formal family meetings are a vital part of any estate plan, but it’s important to seize everyday teachable moments as well. Opportunities like reviewing an investment statement or discussing a news headline can help explain how wealth is created, protected, and deployed. Invite a trusted advisor to participate in the conversation, ensuring that a neutral expert, not an anxious parent, is available to answer any outstanding questions. The payoff is relatively straightforward. Children and grandchildren learn the family’s values before they learn the account balances.
A lack of preparation and education is one of the leading causes of wealth erosion. Involve your heirs with real decisions while the stakes are still small. Which charity receives this year’s gift? Are there specific cottage renovations that should be prioritized? How did you budget for a vacation abroad? Over time, these small moments will ensure they’ve practiced a level of stewardship that prepares them for the eventual gift or inheritance.
Even loving families argue. A designated trustee or your family wealth advisor can act as the voice of reason without taking sides, shielding both assets and relationships from resentment, litigation, or impulsive sales of heirlooms. Their job is to keep the long-term plan on track when grief, divorce, or sibling rivalry threatens to derail it.
A goal without a plan is a wish, and wishes rarely survive estate taxes, market volatility, or unprepared heirs. Work with an experienced wealth-planning team to craft a living document that spells out investment philosophy, governance rules, education expectations, and philanthropic missions. Schedule a formal review every two to three years so the plan evolves with tax laws, family circumstances, and global markets.
Giving in life is ultimately an extension of your estate plan, and it should be treated as such. One common issue with in-family asset transfers during life is how that might impact how fairly your estate is eventually distributed.
The “hotchpot clause” is a sound solution. This clause accounts for any lifetime gifts or loans, calculates their value relative to the overall estate, and adjusts the inheritance accordingly to avoid disproportionate wealth distribution. The major benefit is the freedom to gift at opportune times throughout your life without causing any rifts between your heirs down the line.
Passing wealth from one generation to the next isn’t as simple as some might assume—but being an active participant can lead to a smoother transition, better prepared recipients, and improved results.
Tax and planning benefits aside, inter vivos gifts can help your entire family live life to the fullest. More importantly, you can earn the rare opportunity to see your legacy manifest before your very eyes.
