(please read the beginning of the article in our previous posts)
Don’t let tax efficiencies dictate the best ways to pass on wealth.
The idea that wealthy parents or grandparents leave money to their kids or grandkids in their will is becoming outdated.
Here are some more ideas:
Trusts
Another common form of transferal is via trusts, says Paula Lester, senior trust advisor with Raymond James Trust in Ottawa. “Trusts are being used less for tax savings,” she says. “They’re being used more for control and protection.”
One way they are used to pass on wealth is if the beneficiaries are children. “If it’s large sums of money, [parents or grandparents] may want to phase the child in over a period of time with spaced out lump sums, or they want to just protect the money for a certain period of time for the child.” Another reason is if the beneficiary is vulnerable or disabled.
Another form is the spousal trust. “Actual spousal trusts have a special tax designation where, if you fit the criteria of these qualifying spousal trusts, you can actually roll over assets into it.” The benefit is that taxes are deferred until the spouse dies.
Trusts also work for blended families, says Lester. Money and assets are left to the spousal trust, which the living spouse has access to – not necessarily the capital, but the income. Since the trust is dictated by the deceased person’s will, it can be set up in a way that while the living spouse has access, he or she can’t pass it on to any children who were brought into the relationship, but it can be passed on to any beneficiaries, including children who were born between the deceased and the spouse.
The disadvantages of having a trust, apart from the cost to establish, register and administer it, is that registered assets such as RRSPs and RRIFs can’t be placed in the trust without deregistering them, which comes with hefty tax penalties depending on the amount in the plans.
Transferring properties and stocks
When asked, all the advisors said that while it can be done, transferring real estate and stocks to younger family members can lead to capital gains taxes.
Another option is to have your children listed as joint owners of a property, but, says Astaneh, that leaves the property open to their creditors. Lester says that putting property or stocks in a trust offers credit proofing.
Author of the article: Renée Sylvestre-Williams • Canadian Family Offices
(Please find the following parts of the article in our next posts).
*The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions, a further review should be done by a qualified professional. No individual or organization involved in either the preparation or distribution of this text accepts any contractual, tortious, or any other form of liability for its contents.
For any questions, give us a call.
Please feel free to book a free consultation.
