September 17, 2019 by David Christianson
Okay, so you’ve determined that you now have more money than you’ll need to support yourself for the rest of your life, even if you need long-term care and if everything goes wrong with your investments.
Do you give some money away now? To family, charities, or both? What are the implications of each?
What about your estate? Do you plan to leave some to charities? Do you know how much that can reduce the taxes that your estate pays and if that will affect the amounts left to your family?
These are some of the many questions we review with clients in that situation, and those questions are especially timely right now.
Internally, many people with significant investment portfolios are in the best financial shape they’ve ever been in.
Externally, the Canadian Association of Gift Planners (CAGP) and the CAGP Foundation have launched a national public education effort called Will PowerTM (www.willpower.ca) with the goal of making Canadians aware of the huge benefit available to the non-profit community if more people make even a small gift to charities in their Wills.
They anticipate the initiative could raise as much as $40 billion over the next 10 years to support needed social causes.
Will Power has a modest, yet profound, goal to raise the percentage of gifts given through estate bequests from the current 5% of people to 8.5%, starting with as little as 1% of an estate.
From my financial planner perspective, that makes a lot of sense for most people, if the gifts are carefully planned to maximize the tax benefit. The community benefit goes without saying.
Naming charities in your Will does not prevent you from making current gifts to family or charity while you’re alive. That can be called the difference between giving with a warm hand and a cold one. Donating now gives you the satisfaction of seeing the positive difference you have made, while you can enjoy it, and be appreciated for your generosity.
Sometimes family support is out of necessity, when adult children lose a job, have a health crisis, or get divorced. I’ve seen all of that and much more in my career.
Other times, it’s to help family members get ahead or obtain something they couldn’t otherwise afford, whether it’s a house, a trip, or home repairs.
A recent Globe and Mail article on this topic quoted Dr. Moira Somers, a Winnipeg psychologist who specializes in behavioural finance and support to financial advisors, as mentioning that she received help from her mother years ago with a fence. “Every time I look at that fence, it’s gratitude to my mom.”
In my own case, my mother loaned me $400 to buy my first really good bass guitar when I was 14, a 1966 Fender Telecaster. The difference was that I had to work 40 hours a week for 10 weeks that summer to pay her back.
Since I was only 14, I couldn’t even demand minimum wage. That taught me a lot about the cost of things in terms of sweat and toil, a lasting lesson, and the real gift.
Hence, my philosophy is that you must differentiate between gifts to established adult children who are self-motivated and hard-working, who will keep working as hard after a gift, while being careful about gifts to adult children who have shown little initiative or consistently overspent and incurred debts.
Next week, we will review the tax and other ramifications of living gifts to both family and charity, and considerations when making charitable bequests in your Will.
Tune in next week…
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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.
Please consult legal, tax, insurance and investment experts for advice on your unique situation.
David Christianson, BA, CFP, R.F.P., TEP, CIM is recipient of the FP Canada™ Fellow (FCFP) Distinction, and repeatedly named a Top 50 Financial Advisor in Canada. He is a Senior Wealth Advisor & Portfolio Manager with Christianson Wealth Advisors at National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.