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It is common for people to choose to keep all of their assets until they pass away, naming everything to different loved ones, friends and charities in their will. In doing this, will-writers are certain that they will have possession of everything they own up until their passing. However, will-writers should consider gifting cash or other assets before passing away. This way, any assets that are gifted can completely avoid the will and probate process. This means that they won’t be subject to any probate fees. Additionally, gifts in Canada are not subject to taxes.
Before preparing to name gifts to family or friends, you should prepare a thorough financial plan detailing how much you expect to spend for the remainder of your life. You should always put your own needs and wants at the forefront of the decision-making process as it is your estate and your assets. Gifting before death should only be used as a means of using excess estate assets, after you’re certain you can provide for yourself for the remainder of your life.
After the administration of your estate is complete, everyone named in the will get their share of your estate that you named to them. So, what’s the difference between beneficiaries receiving the funds before your death or after if, in the end, they receive their inheritance? There are many different benefits to giving estate gifts before death. As mentioned above, the most important benefit to the majority of people is the tax savings.
To further clarify how gifting before death can save money, let’s look at an example. A grandmother has a total of $1,000,000 cash assets in her estate. Because of her age, she recognizes that the most she will ever get around to spending during the remainder of her life would be $100,000. She then decides to gift $900,000 to the beneficiaries of her will and then tragically dies the next day. Since probate fees in BC are approximately 1.4% of the total estate’s value, after her will goes through probate, her estate can expect to pay $1,400 in probate fees on the $100,000. The $900,000 that was gifted is not subject to any probate fees or gift taxes. If the grandmother didn’t gift anything before her death, the entire estate worth $1,000,000 would go through probate. The estate would have to pay about $14,000 in probate fees instead. In this case, the estate is essentially paying an additional $12,600 simply by keeping the money until the death of the will-writer.
Looking beyond the monetary benefit, for some, it can be a reward in itself watching family members spending and utilizing their inheritance. Receiving the gift of money can be helpful for young adults about to begin schooling, looking buy their first home or start a new business. The gift can help to offset some sunk costs and the will-writer is able to watch the young adult pursue their dream. Depending on your beneficiaries’ ages and stages of their lives they are in, a gift now can make a big difference. Gift-givers can feel a sense of joy and gratitude as they are able to see the impact of their gift on the life of their loved one.
There can also be personal reasons that a will-writer might choose to give a gift before their death. In the case of a family emergency or unexpected circumstance, it can be extremely helpful to receive an inheritance as soon as possible. As a will-writer, you might recognize that you won’t necessarily need the excess money and it can make more sense in some scenarios to simply give a gift of cash, to help out. While it might seem unfair to do this, the other beneficiaries of your will can receive a higher percentage of the estate to make sure everyone is still receiving a fair share of the estate. There are various different work-arounds to ensure fairness amongst beneficiaries.
In the end, whether you give gifts before your death or name the inheritance in your will, those you wish to benefit from estate do so. The difference is that gift giving before death can avoid additional probate fees and provide sentimental value to you and your loved ones. Before naming any gifts, you should always be certain that you will keep enough to provide for the remainder of your own life.
If you need help estate planning, contact an experienced estate lawyer today. We will work with you, ensuring the perfect estate plan for your situation, maximizing your estate’s value and your loved one’s prosperity.