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(e.g., an operating business, the family farm or a real estate portfolio), a freeze can give parents an opportunity to park ownership until succession decisions are nalized. “It gives you a chance to test drive the kids in terms of their ability to run things,” Wusyk says. “It gives you lots of exibility at the same time as it keeps the tax man at bay.”
. . . and plenty of reasons not to
While she acknowledges the advantages of early giving, Michelle Isaak, associate with Davis LLP in Vancouver, says “it’s not something we gener- ally recommend.”
In Isaak’s experience, many people “make a deci- sion at a certain point in time, with certain assump- tions. Those may not be accurate at a later date,” she says. Giving away too much too early could leave parents with little room to manoeuvre if their retirement projections don’t go as planned.
“People come in and think, ‘Oh, property prices are rising so I’ll have lots of equity in my home. I’m going to be ne.’ And then those things change. Property prices may fall. Clients’ RRSP or invest- ment portfolios may decline in value.”
Increasing life expectancies also play a role when deciding whether or not to gift early. For instance, Isaak says if clients go to a nicer seniors’ residence, they’re “going to burn through money awfully quickly.” He views taxes as another drawback of early giving. “The average person wants to defer
their taxes until death—the idea that paying later is better for you now,” she says. “All of a sudden, in one year, you may have a large tax bill. So that has to be part of planning.”
If the gift is the family cottage, a vacation property or other real estate, there’s also property transfer tax to consider. While the exact gures vary according to the province, such tax can be considerable: on a $500,000 Muskoka, Ont. cot- tage, for example, the transfer tax is about $6,500, while a similarly priced condo in Whistler, B.C. would generate a bill of about $8,000 (see “Num- ber crunching,” page 9).
“That would have to be paid by the child. But chances are the child’s not going to want to pay that, so it’s going to probably come out of Mom and Dad’s pot,” Isaak says.
If the child inherits the property instead, she would still have to pay property transfer tax. But, additional funds could be put aside in the meantime or be- queathed in the will. Such a move would also generate probate fees of $7,000 in Ontario, or $6,650 in B.C.
Beyond numbers
Financial issues aside, Isaak says the idea of early giving makes many of her clients uncomfortable. “They really want their kids to make it on their own,” she says. “They’ll help a bit on the way, but
they want them to learn what it’s like to start from scratch.”
These parents are also concerned about how early giving might change relationships within the family, she adds. “If kids have an expectation, your relations might be a little bit different,” she says.
If Mom and Dad give the bulk of their estate away relatively early, there may be less incentive for the kids to provide care when the parents become frail and in rm. “It’s unseemly to talk about, but it’s part of human nature,” Isaak admits.
If, after running through the drawbacks, a client still wants to give away assets, Isaak strongly recom- mends getting things in writing.
“Document that gift. Sign something, like a deed of gift that con rms you are gifting this,” she says. “You don’t want any arguments in the future that ‘Dad didn’t really want to give that to you; he just put your name on it for convenience, therefore it should be brought back into the estate.’ ”
This can be a particular problem with jointly held assets, such as chequing accounts or princi- pal residences. Because the law generally assumes accounts held jointly with adult children are held in “resulting trust” (meaning the bene cial interest is presumed to be retained by the parent), other sib- lings may dispute the gift. Documenting the giver’s intentions solves this problem de nitively. AE
PROPERTY TRANSFER TAX
Every province in Canada (including territories, and some cities too) taxes the value of the property being bought, sold or otherwise con- veyed. The fees vary considerably. The chart provides an example of the transfer tax owing on properties of various values.
PURCHASE PRICE
$200,000
$300,000
$400,000
BRITISH COLUMBIA
$2,000
$4,000
$6000
ALBERTA
$40
$60
$80
SASKATCHEWAN
$600
$900
$1,200
MANITOBA
$1,650
$3,650
$5,650
ONTARIO
$1,725
$2,975
$4,475
CITY OF TORONTO*
$3,450
$5,700
$8,200
QUEBEC
$1,750
$3,000
$4,500
NOVA SCOTIA (HALIFAX)
$3,000
$4,500
$6,000
NEW BRUNSWICK
$500
$750
$1,000
PRINCE EDWARD ISLAND
$2,000
$3,000
$4,000
NEWFOUNDLAND
$800
$1,200
$1,600
* includes municipal and provincial property transfer taxes
10 AE 01 2015
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