Gifting During Your Lifetime: A Smart Way to Transfer Your Wealth?

Transferring wealth is not limited to what is provided for in a will. More and more people are choosing to plan this transfer during their lifetime by making gifts to their children or loved ones. Although this strategy can offer several advantages, it also raises certain tax and estate planning considerations that should be examined before taking action.

Why Make a Gift?

A gift allows a person to transfer property, a sum of money or certain rights to another person without receiving anything in return. This transfer may take place during the donor’s lifetime or, in certain specific circumstances, upon their death.

As part of an estate plan, a gift can be used to:

• Help a child purchase a property;

• Support a business project;

• Reduce the value of the estate that will eventually be transferred upon death;

• Provide for a spouse in certain specific family situations.

For many families, it is a practical way to see their loved ones benefit from their wealth during their lifetime.

Gift Inter Vivos or Gift Mortis Causa?

There are two main categories of gifts.

Gift Inter Vivos

A gift inter vivos takes effect immediately. The donor makes a firm and irrevocable commitment, even if the property or money will not be transferred until a later date.

This is the most common type of gift when a parent gives money to a child or transfers property during their lifetime.

Gift Mortis Causa

A gift mortis causa takes effect only upon the donor’s death. It is primarily used in a marriage or civil union contract and is limited to certain individuals specified by law.

It may be used to address certain matters involving the surviving spouse’s rights in an estate context.

Tax Consequences of Making a Gift

Even when made without consideration, a gift is not always free of tax consequences.

For example, a parent who sells investments to fund a gift may have to pay tax on the gains realized. Similarly, transferring property that has increased in value over time, such as real estate or an investment portfolio, may result in a taxable capital gain.

It is therefore advisable to assess the tax cost before completing the transfer.

Consider Fairness Among Children

A significant gift made to only one child can create an imbalance within the family.

To maintain fairness among heirs, some people include a compensatory bequest in their will for their other children. This measure helps align the estate plan with the family’s objectives and prevent potential conflicts.

Should You Make a Gift During Your Lifetime?

A gift can be an effective estate planning and wealth transfer tool. However, before making a gift, you should ensure that it will not compromise your own financial security and carefully assess its tax, legal and estate-related consequences.

Are you considering making a gift to a child or loved one? Mallette’s tax specialists can help you assess the tax, financial and estate-related implications of this decision and develop a strategy tailored to your situation.