Passing Along Your Inheritance now

Posted Friday, February 24th, 2012. Filed Under Financial Empowerment

Some of us grow up thinking “when our parents pass on I will be fine because I will be left enough money to survive”. This line of thinking is not only childish but it is incorrect.

I will admit that when I was younger I was one of those people. With maturity and awareness I now understand that this is not the case. First of all, I am totally responsible for my outcome, financially or otherwise. My parents have done their job, raising me and teaching me the life skills so I can make good decisions for me. I’ll admit, not everything passed on was good for me however I have taken control of my life and I can assess what is good for me. I have broken certain thought patterns around money and abundance and have a much better relationship with both. Secondly, as I have since discovered, in Canada you are not required to leave anything to your children. Therefore, my parents can decide to leave whatever assets they have to a charity, my other siblings or whatever. I know that this is not the case however it is the truth.

The other real issue surrounding inheritance is that because of the world state around money, investing, interest rates, return on investments, people today are needing more money to survive in their retirement years. I have never read so many articles on this topic. Forget about what they are leaving their children, parents today just want to make sure that they have enough money for themselves to live in the style that they have become accustomed.

If you have saved and invested well and do want to pass something on to your children it may be worth investigating, at least in Canada, passing on your inheritance now. I want to share an article on the topic of Inheritance written by Michael Nairne, National Post, Saturday, February 11, 2012. He says with the largest intergenerational transfer of inheritance pending (actually starting now) some wealthy have taken it a step further by not just investing in their RRSP (tax deferred income) and TFSA (tax-free growth), they have turned the annual ritual of RRSP and TFSA contributions into a family affair by gifting money to their adult children and even adult grandchildren so they can contribute to their own TFSAs and RRSPs.

Most wealthy families face hefty tax bills with bulk of assets held outside of registered plans. This leaves their wealth to be taxed at the highest marginal rate. Even conservative multi-millionaires with highly taxed fixed-income portfolios feel this pain as well.

What to do? When transferring our wealth through inheritance, Canada doesn’t have an estate tax per se, but there is generally a deemed disposition of capital property on death that gives rise to capital gains taxes. Transferring wealth to a spouse defers these taxes but eventually it will be paid. There is also the cost of probate taxes.

By gifting money to their adult children or grandchildren, which then can be used to fund their RRSP and TFSA contributions, affluent parents can address both tax issues. By increasing the family’s capital held in non-taxable and tax-deferred environments, they reduce the family’s overall income-tax bill. By moving assets into the next generation’s hands now, they are planning for the inevitable.

The hidden benefit is that these kids can use the money at a time when they are paying off school loans, saving for a house and starting their family and/or career. This gives them the opportunity to do that while also saving for their future. They do not have to by-pass this benefit because they now have the cash to do so. They also realize the compounding affect of interest over a longer period of time! If a child needs money lets say to buy a house, he/she can take the money from his/her TFSA tax-free account and then add it back in subsequent years.

This is a great opportunity for affluent families to plan RRSP and TFSA contributions on a multigenerational basis. Before a family considers this they must make sure and be confident that their retirement years and philanthropic plans are fully funded before they start giving their capital away. If so, you may want to consider this.

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2 Responses to “Passing Along Your Inheritance now”

  1. Friends call me [Page] on February 28th, 2012 9:15 am

    Greetings Sandra, I really enjoyed your article. It moved me to find out what”money” really is. The average concept understood from the persons I’ve asked is that it is very vague at it’s best. (a form of exchange for goods and services rendered.)
    So, I looked into it further and found the movie “Wizard of Oz” very educational also in the original book Dorothy had shoes made of silver. The movie is a metaphor for what happened to money.
    Once there was barter system, then silver and gold in weight was a mode of exchange.
    A wizard by the name of Mandel House with the help of Goverment helped to implement a fiat system of green promisory notes while at the same time removing gold from circulation.
    The picture goes from black and white to colour. My take is one goes from being a man, woman and child to a HUE-man being.
    Money exists not by nature but by Law(what we believe to be the law is Contract law).
    It is an abstract legal power inbedded in Law. That is why the law system has it’s own dictionary “Black’s Law” where terms and words are redefined for the hue-man and has nothing to do with what we really are. If you happen to defend yourself in one of their various courtrooms regardless of the matter you are there by consent, everyone in jail has consented to being there. According to Lord Blackstone, common law is greater than English common Law. Common law is the unwritten law of reason.The[Golden Rule] … do no harm, don’t harm another’s property(body) and be honourable in all your contracts(an agreement that is reasonable between two men or women).
    In the legal system a corporation is a person and it’s voice is money. In essence a fictional person can really mess up your life , your mind and suck the joy out of living.
    We are man it is our kind, We are sons and daughters of our father who teaches us of the order in the Universe, We are are mother’s children and her nature is wise, loving, gentle and patient. I love and honour my parents but they too have been fooled and jaded by this system and have almost caused me to go astray. There is more to life than wasting precious youth inside a school system
    which serves to confuse and corrupt the mind until indifference has settled.
    Why don’t they teach the “TRIVIUM” and the “QUADRIVIUM” as this would be a better foundation for educating self.
    We would quickly find out that our name itself is a corporation or legal fiction.
    The surname is their creation and they own it. If you claim to be the name and don’t know who you are and you appear before their courts you have already lost.
    It seems to me either people don’t know or don’t care to know and by default opt for the motto …[Suck!, Suckers, Sucker].
    The problem being none ask who supplies the lollipop? We all know sweets taste great but are they really good for you … your liver should be able to answer that.

  2. Sandra on February 28th, 2012 2:52 pm

    Thank you so much for that. I found it interesting. I just watched the movie I AM which I highly recommend. There are a lot of “untruths” that have been accepted as truth and as such have dictated how our systems have developed. It is time to right this and remove the “untruths” and tear down systems and rebuild them from the ground up in a way that is more natural to what we are meant to be – unconditionally loving, connected beings. I will address this in the last section of my book.

    Again, thank you.


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