There is a big difference between ‘gifting’ and ‘giving’, but they can both make the biggest difference in people’s lives. These are not exactly technical financial terms, especially given that CRA (Canada Revenue Agency) uses them interchangeably. However, in day-to-day matters, and for the purposes of this blog, we will describe the two as follows. The term ‘gifting’ refers to the passing down, or transferring, of your assets to loved ones while you are still alive. The term ‘giving’, on the other hand, refers to the donation of funds to a charity or not-for-profit organization, often with the added intent of receiving a tax deduction receipt. My focus in this blog is on the transfer of wealth, while you are living, in a tax efficient manner. After all, ‘tis the season!
Often in meetings with clients, I sense people’s concern about where and how their assets will be handled and distributed once they pass on. This is a valid concern and certainly calls for putting relevant instructions into a proper will. There are, however, some good options for asset distribution that are available to you while you are still alive. Another concern that people have is that they want to gift and/or give assets in the most tax efficient way possible, and enjoy witnessing their decision being carried out. Regardless of when or how you decide to distribute some of your assets, it is always important to follow the legal and tax guidelines as set out by the CRA and our legal system.
For The Sake of Your Loved Ones
“Remember that the happiest people are not those getting more, but those giving more.” – H. Jackson Brown, Jr.
As mentioned, although the term ‘gifting’ is not exactly a proper financial term, it is often associated with giving family members and friends a part of your estate, as cash or non-cash ‘gifts’ while you are in your living years. It’s a personal transaction between you and your loved ones. Cash gifts are not generally taxable provided that the money comes out of your net liquid assets. Non-cash gifts are treated similarly, although any capital gains accumulated on the asset is attributed back to you.
Gifting during your lifetime can provide numerous benefits. The reasons for wanting to give loved ones gifts can be numerous to both you and them. Parents may want to help their kids with their mortgages, boost their investments in order to give them a healthier financial future, to transfer and defer potential future capital gains taxes of appreciating assets (e.g. a cottage) into the hands of the (presumably) younger generation, etc. Another benefit is that it aids in resolving, and even circumventing, disputes that may arise between heirs in regards to a parent’s estates proceeds after death. Tools and strategies which can help aid the transfer of wealth or ‘gifting’ to family and friends include life insurance, family trusts and estate freezes. These are too complex to discuss here save to say that a financial professional should be consulted about what the best course of action is for you.
For The Sake of Your Piece of Mind
“We make a living by what we get. We make a life by what we give.” ― Winston S. Churchill
Charitable ‘giving’, on the other hand, is considered to be impersonal even if the cause is highly personal to you. This is because a nonprofit or charity is not normally ‘related’ to you. According to CRA, “’related persons’” are not considered to deal with each other at arm’s length. Related persons include individuals connected by blood relationship, marriage, common law partnership or adoption (legal or in fact). A corporation and another person or two corporations may also be related persons” (see www.cra-arc.gc.ca/E/pub/tg/p113/p113-e.html). Some individuals bequeath a part of their estate to a cause they support. During the course of their lives, they may also ‘give’ to their cause(s), be it a religious organization, a health-related one, a hospital, educational institution, etc., and they can receive a tax receipt if it is a registered charity. Of course, the tax receipt is not the biggest driver of giving. It’s doing something you believe in, giving back to society, helping a worthy cause. It can be very simple to do. Just give!
New Year’s Resolution
Something you should seriously consider is creating a plan for the distribution of your wealth during your lifetime. No, I don’t mean that you should give everything away! But you may want to give your kids the cottage now, so that they’re not fighting over it later. A New Year’s resolution could be to create a complete Life Plan that includes ‘gifting’ and ‘giving’. Let’s close with this final quote which tells it all. Finding out your options and understanding the pros and cons of each can help get the new year rolling on a positive course.
“I know what I have given you… I do not know what you have received.” ― Antonio Porchia
Getting Started
Gifting and charitable giving can be a great way to do something meaningful with your money. Once you start, you realize that giving is much more satisfying than receiving. If you’re wondering how you can incorporate gifting or charitable giving into your financial plan, contact me. I’d be happy to help you navigate charitable giving and identify an appropriate giving method that works for you. Contact me at 416-553-5004 or gino@blacksprucefinancial.com.
About Gino
Gino Scialdone is a financial advisor and the owner of Black Spruce Financial, an independent wealth management firm serving independent business owners. Having grown up in a family business and owning a business himself, Gino has a unique understanding of the challenges and needs business owners face. Offering a comprehensive array of wealth management and financial planning services, he strives to provide sound and creative strategies that meet a business owner’s short and long-term needs. Based in Toronto, Gino serves clients throughout the greater Toronto area and southern Ontario. To learn more, connect with him on LinkedIn or visit www.blacksprucefinancial.com.