Some parents like the idea of giving a gift of money to their children during their lifetime – to allow them to have cash when they really need it, whether to pay for a wedding, fund their education, or purchase a home. If you go this route, make sure you are comfortable with the amount you are giving, and know that once you make the gift, you could lose control over those funds.
There are no restrictions on the amount of money you can give to your children while you are alive, although you should ensure that your children are mature enough to manage the gift properly. If the gift is being made from a bank account, instead of from the sale of investments or other assets, then no tax will be paid on the money because Canada has no gift tax. If you need to sell assets to make the gift, then capital gains tax may be applicable.
Although the rules across Canada vary, in most jurisdictions inheritances and gifts may be exempt from a division of family property if the assets have been kept separate...
When you gift cash to your children, you will be around to see them enjoy it. And, assuming they’re adults, if they invest the money and are in a lower tax bracket than you are, the investable income will be taxed at a lower rate in their hands.
You need to be aware that if your child uses the money to buy a jointly held asset with a spouse and they later separate, those assets would likely be shareable in a division of assets. You may consider protecting the gift so that it doesn’t become shareable: you could structure the transaction as a loan through either a promissory note or loan agreement. Your child may not be expected to make payments against the loan during your lifetime, but the amount of the loan can be later offset against the amount they will inherit.
If you’re giving money to some children and not others – and you ultimately want your estate divided equally to maintain sibling harmony – then ensure that what you give now is documented in your will. It should reflect that the children who are not receiving a gift now will receive the same amount from your estate later, and that the estate will then be equally divided once that amount is paid.
The information in this article is relevant for Canadian provinces and territories other than Quebec. You should always confer with an experienced family lawyer in your jurisdiction to understand the rules that apply to your specific situation.