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Why and how to transfer ownership of your estate during your lifetime

18 March 2020 by National Bank
Benefits of gifting assets before death in Canada

No one likes talking about their own death. That may be why most people are hesitant to talk about estates, wills and inheritance with their loved ones. We might work at banks, but we get it. What if we told you that instead of passing on your possessions to your loved ones after you die, you could pass on your estate during your lifetime? Here’s an overview of this option in Q&A form!

What’s the difference between a succession and a gift inter vivos? 

Before you decide to leave an inheritance either during your lifetime or after your death, it’s important to understand what succession and gifts or donations are. 

Succession refers to the process and legal regulations that apply following a person’s death, whether they have a will or not. These regulations are used to determine the laws that apply to the succession, the required conditions for being considered as an inheritor, the conditions for the transfer of possessions that are part of the succession assets, and the rights of some of the creditors of the succession. 

“For those who pass away without having written a will, the laws that govern successions in Quebec are dictated by the Civil Code. For the rest of Canada, it’s dictated by the laws outlined in each province,” explains Mohamed Wakkak, senior advisor, financial planning at the National Bank. 

As for gifts or donations, according to the Quebec Civil Code, these are acts through which the donor transfers ownership of property for free to another person (the donee) who accepts it. There are rules that must be followed in order to give a gift inter vivos (meaning during your lifetime). In Quebec, the donor must be in a position to give the transferred possession or asset, and the donee must be able to receive it. If you’re giving the movable property in person – let’s say a gold necklace, an antique wardrobe or a stack of bills that you keep in your sock drawer – you don’t need a contract. For everything else (property, investments, etc.), a notarized gift deed is required, on pain of nullity (which you don’t want!).

Why pass on an inheritance during your lifetime?

There are many benefits related to this particular option. Here are a few: 

1. Supporting your loved ones

Do you want to make sure your grandchildren can go to university without worrying about their finances? Would you like to help your children buy a home sooner by covering the down payment? Then you may want to sell your cottage and give them the profits during your lifetime. You could also liquidate some of your savings to gift money inter vivos to a third party in need. 

2. Enjoying the emotional aspect of inheritance transfers

You could hand your niece, a fine arts student, a painting that belonged to your great-grandfather. Then you could see her appreciate the piece (instead of letting it collect dust in the attic). 

3. Making your inheritors’ lives easier

Your inheritors may not be thrilled about the idea of managing your rental property. They may not even be very good at managing some of your major assets. “Some people decide to sell off their possessions so it’s easier. They’ll sell their real-estate properties then give the money to their loved ones. But watch out: if there’s a capital gain, the donor will have to pay taxes on that, unless what they sold was their main residence,” highlights Mohamed Wakkak. 

4. Making sure your wishes are followed

By gifting inter vivos, you can ensure that your son is the one who gets your piano… And not your ex, just in case you forgot to update your will. 

5. Showing generosity

Helping your loved ones is great, but there’s also philanthropy. By making a donation to a charity that’s registered with the government, you’ll benefit from a tax credit for charitable donations, as long as the donation is made in Quebec (French only) or elsewhere in Canada. Good deeds do pay off! 

Who can you give to, and how much? 

You can give as much as you want; there’s no law restricting gifts inter vivos to your inheritors. “But you have to determine whether it’s truly beneficial to do this before your death,” adds Mohamed Wakkak. 

Why? Because the tax consequences vary depending on what you want to give:

1. Money

Good news! There are no taxes to pay on cash donations for either the donor or the donee.

2. Real-estate property

Gifting your main home isn’t taxable in terms of capital gains. If you want to gift your lovely lakeside cottage, think it over carefully, because capital gains are taxable on secondary residences. “If you sell it now, you’ll collect capital gains, but you’ll have to pay tax on them,” notes Mohamed Wakkak. 

3. RRSP

If you want to withdraw funds from your RRSP to make a cash donation to a family member, keep in mind that the money you take out will be taxable. “To make sure your investments remain tax-sheltered and to avoid taxes upon death, we recommend transferring the RRSP to the surviving spouse. Even if it’s transferred to a family member other than the surviving spouse, there will be taxes to pay on the RRSP,” Mohamed Wakkak adds. 

4. TFSA

You can withdraw from your TFSA and gift the money to your inheritors during your lifetime without being taxed. 

5. Non-registered investment(s)

If you liquidate them to make a cash donation, you’ll have to pay taxes on the profits. 

When should you start gifting inter vivos? 

There’s no recommended age or age limit. “People usually start when they have a family and a fairly established estate. You need to have thought about your other priorities, like retirement planning. People will usually start thinking about this when they do their estate planning. But you can start earlier, like if an entrepreneur wants to transfer ownership of their business,” Mohamed Wakkak adds. 

What questions should you be asking yourself? 

1. Why do you want to gift inter vivos?

 “Usually, people want to help their children by gifting them their home or selling their investments to give them money. It’s a personal and emotional decision that’s up to you. Talk it over with your advisor to make sure that it doesn’t have a negative effect on your retirement.”

2. How will it affect your finances? 

Before transferring your possessions to the people you love, plan your retirement and think about your future. We can’t say it enough: you need to take care of yourself before you can take care of others. Some gifts have a fiscal impact, so make sure you’re well-informed! 

3. Have you considered loans?

If you prefer to collect your money eventually, you can take out a loan with guarantees in case of insolvency. Speak with a notary to draw up a contract and set the conditions. 

What do you do if you want to gift inter vivos? 

1. Think ahead and make a will

Since it’s difficult to pass on everything you own during your lifetime, it’s still a safe bet to write down your final wishes. A notary can help you make a plan for what possessions and assets should go to whom. 

2. Meet with your financial planner

Once you’ve decided to make a donation, make an appointment with your financial planner. They will be able to guide you through the process and determine how the donation will affect your financial situation. 

3. Get help from professionals

Other experts can help you make an informed decision. Your notary and tax expert can help you understand and follow tax laws. They will be able to determine the best strategy for you depending on your specific situation. 

4. Get a notarized deed

In particular, this contract will establish where the possessions come from and the transfer dates for all assets to be gifted inter vivos, except for movable donations. “If all you’ve done is outline your gifts in a non-notarized document, the donation is declared null and the inheritors could contest it after your death,” Mohamed Wakkak explains. 

By formalizing an important donation within a notarized deed published in the Register of Personal and Movable Real Rights, you’re also protecting yourself as the donor. You could even include a seizure clause exempting property from seizure by your eventual creditors. 

The notarized deed will also ensure further protection for the donor in case of separation or divorce. An exclusion of conjugal possessions means that the gifted property will no longer be part of the family estate and they will not be able to be claimed by the spouse. Please note that getting a notarized deed incurs fees that may vary depending on the province you live in. 

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