Rights & Money

Help Out Now or Later?

Olev Edur answers your questions about your rights, personal finance, and estate planning

 

I want to renew my will, and I want to minimize taxes so that my children get as much as possible from my estate. My assets include a home and a condo, both mortgage-free, and about $75,000 in savings. My income includes $1,000 a month in rent from the condo plus a decent teacher’s pension as well as Canada Pension Plan and Old Age Security benefits, so I don’t need to worry about dipping into my savings unless some major crisis were to arise. I’d like to sell the condo, but I’m wondering what to do with the money. Should I give it to the kids now or put it in a trust for their benefit later? Or should I keep it in case that crisis should arise? Both kids are in their 40s, married, and working and own their own homes, although they still have mortgages. What do you suggest?

Your first priority should be ensuring your own financial security. To that end, since your pension income is permanent and apparently sufficient for your day-to-day needs, you should figure out exactly how much you’ll need to set aside for that possible rainy day. Whatever remains can go to the kids.

As for gifting while alive, there is an advantage—gifts aren’t taxable to the recipient. And since the kids still have mortgages, you can leverage your assistance by enabling them to pay off those mortgages, especially now that interest rates have soared. Consider, for example, that the interest rate on mortgages now can be six per cent or more and that interest isn’t tax-deductible.

Assuming a marginal tax rate of, say, 30.5 per cent in your home province of Alberta, the kids would have to earn almost eight per cent to cover that cost. In other words, to the extent that you can help pay down their mortgages, they would have that much more money to cover their living costs or to set aside for their own savings every year.

On the other hand, if you’re concerned about their using the money wisely, you might consider a trust arrangement or perhaps prepaid life insurance that would give them immediate tax-free payments when the time comes. There are a great many options.

I strongly suggest that you engage the services of an independent, fees-only financial planner, who can access all the relevant information and explore your options. More than at any other time in your life, the benefits of this financial advice could far outweigh any fees that might be involved.