Some people mark personal items in their home with masking tape to indicate the name of the person who is to receive it when they die. Masking tape can be removed or lost so to ensure that each item is given to the intended person, give it directly to the person while you are alive or attach a letter to your will listing each item and who is to receive it.
Some lawyers include a clause in the will stating that you are providing a letter to assist your executor with distributing personal items. Then, it you want to make a change you just have to redo the letter and not your entire will.
Family members often squabble over the assets, however small, that they would have liked to have or feel that was intended for them. If may be helpful to family relationships to carefully note who gets what. It’s even better to give personal items as a gift while you are still alive. Explain that you really want them to have the gift and I’m sure they will graciously accept it.
If you give your adult child the cottage, mutual funds or any asset other than cash, Revenue Canada may assume that you sold that asset at fair market value and there could be a taxable capital gain that you will have to report as income.
If you use a trust account to give money to a child or grandchild who is under 18, you are still responsible for paying income tax on any interest earned. It may be better to put money into an interest free account (up to $5,000 a year) and have it in your will that that account is for the grandchildren. There is also a Registered Education Savings Plan (RESP) that can be a tax effective way to give money to a child or grandchild.
There are advantages to giving away some of your estate while you are still alive:
- You can see the joy that the gifts bring to those you love.
- Your future income taxes may be lower.
- You can settle things early and save future disagreements.
There are disadvantages to giving assets away during your lifetime:
- You might be giving up control of your property.
- Revenue Canada may consider it “sold” and tax you fair market value.
- You may give away too much and need it later in life.
I’m not suggesting that you should or should not give away some of your money or assets. You must first assess your needs for now and for the future. If you are satisfied that your needs will be met, then discuss your plans with the recipient to see how they will be using your gift.
It is sad if a gift is not appreciated or is wasted. Be sure that you will be at peace with whatever your decision is.
Once you get pass personal items and who gets what, it’s best to seek the advise of specialists in the field of estate planning. You don’t want to run into trouble with the Tax Man or cause a family split because someone feels left out.