CIBC's Jamie Golombek hits the misconceptions about gifting money to your adult children
TORONTO, July 27, 2017 /CNW/ - CIBC (CM:TSX) (CM:NYSE) – The majority of Canadian parents with a child 18 years or older (76 per cent) say they'd give their kids a financial boost to help them move out, get married, or move in with a partner, with nearly half of them giving an average of about $24,000, a new CIBC poll finds. And, when given the option, almost two-thirds of parents would prefer to give cash rather than have their adult child and partner/spouse live with them.
Yet, most Canadians (68 per cent) either misunderstand or say they don't know the tax and other financial implications of gifting.
"The poll findings show that while many parents are thinking about giving their kids a financial boost to leave the nest, there are a lot of misconceptions about gifting," says Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC Wealth Strategies Group, in his new report, Give a Little Bit… "Unlike in the U.S., we don't have any kind of gift tax, which means if you have what's called 'never money' – money you'll never spend in your lifetime – it's worth considering making a financial gift while you're alive to help your kids get started in life."
Mr. Golombek addresses the misconceptions about financial gifting and provides important tips on tax considerations in his Give a Little Bit… report and accompanying video.
Key poll findings:
- 76 per cent say they'd give financial support to help an adult child move out, marry or live with a partner, while 24 per cent wouldn't provide any financial support.
- Of parents providing financial support:
- 47 per cent would give money in the form of a financial gift
- 28 per cent would let their adult child and his/her partner live with them
- 25 per cent would act as a guarantor on a mortgage
- 65 per cent of parents would prefer to give a financial gift than have their adult child and spouse/partner live with them
- $24,125 is the national average gift size; Those with household incomes of more than $100,000 gift nearly double that amount ($40,558) with as many as 25 per cent giving over $50,000.
- 68 per cent of Canadians either misunderstand or don't know what taxes exist on financial gifts
Gifting risks
The poll finds that parents are split on whether or not to tie a financial gift to major or special milestones like buying a home, graduation, birth of grandchildren, or settling down with a spouse. Further, more than half (55 per cent) of parents are concerned about gifting to their children, with two-in-five of them admitting they may need the money later and almost a third (29 per cent) worrying that their son or daughter won't use the money 'wisely'.
As well, more than a third (37 per cent) of all parents say they're comfortable taking on debt to help their kids get a good start. However, few parents will actually tap into their credit lines or borrow from family and friends and most (80 per cent) of those giving money will draw from cash and savings to fund their gifts.
"The caveat to making any financial gift is that you generally don't want to put your own finances at risk," says Mr. Golombek. "You need to map out the lifestyle you want in retirement and the money you'll need before making a financial gift."
Bequeathing Boom
Over the next decade, baby boomers are expected to inherit an estimated $750 billion, according to a CIBC Capital Markets report. Based on the findings from the CIBC Gifting Poll, likely a good chunk of the bequest boom will skip a generation as 74 per cent of parents aged 55+ say they would pay forward their inheritance or a portion of it to their children or grandchildren if they received an inheritance today.
When it comes to gifting their own money or assets, over half (56 per cent) of boomer parents who have given or plan to give a significant gift or an early inheritance say they'd feel obligated to give to every child or grandchild (73 per cent), although not necessarily the same amount. Most wouldn't attach any strings to the gift; 60 per cent say it's none of their business what their adult kids do with the gift.
"When you gift during your lifetime, you're able to enjoy seeing your beneficiaries use the money while at the same time reaping potential tax savings opportunities," Mr. Golombek says. "In addition, by gifting assets before you die, these assets will not be subject to probate fees because they will not be part of your estate."
He also points out that the types of gifts and amounts given to children/grandchildren can create family conflict if not handled with sensitivity and forethought. "Sitting down together with an adviser can help you sidestep potential familial issues and craft a well-thought-out, tax-efficient plan for gifting money or assets," he says.
Five tips to gifting:
- Talk to your financial advisor to determine how much 'never money' you may have
- Gift cash in Canada with no tax implications (gifting appreciated property may trigger capital gains tax)
- Minimize taxes for the entire family by gifting property to family members in lower tax brackets
- Use strategies to avoid probate tax of up to 1.7% (depending on the province/territory) of the estate's value
- Help kids buy a home or pay down debt with a secured mortgage
Poll findings:
Canadian parents who would give financial support to help an adult child move out, marry or live with a partner:
|
Yes |
76 % |
|
No |
24 % |
Among Canadian parents who would give financial support to help an adult child move out, marry or live with a partner:
|
Give my adult child a monetary gift to help them get a good start |
47 % |
|
Permit my adult child and his/her partner to live in my home to help them save money for a home |
28 % |
|
Act as guarantor to help them get approved for a mortgage to buy a home |
25 % |
Average gift size among Canadian parents who will give their adult child(ren) a monetary gift:
|
All CDN |
<$50K Income |
$50-99K Income |
$100K + Income |
|
|
$0-999 |
12 % |
17 % |
11 % |
3 % |
|
$1,000-$4,999 |
23 % |
28 % |
25 % |
16 % |
|
$5,000 - $9,999 |
21 % |
23 % |
20 % |
18 % |
|
$10,000 - $19,999 |
17 % |
9 % |
21 % |
22 % |
|
$20,000 - $49,999 |
13 % |
12 % |
11 % |
16 % |
|
$50,000 + |
15 % |
12 % |
11 % |
25 % |
|
Mean |
$24,125 |
$22, 784 |
$17,926 |
$40,558 |
Percentage of Canadian parents who would pass along a sum of money directly to children or grandchildren if they received an inheritance today:
|
Yes |
71 % |
|
No |
17 % |
|
I don't know |
12 % |
Among parents who have concerns about giving their adult children a financial gift, top concerns:
|
I may need the money later |
40 % |
|
My child wouldn't use the money wisely or spend it responsibly |
29 % |
|
My gift could be lost or impacted in the event of a marital/relationship breakdown |
12 % |
|
I wouldn't have control over how they spend it |
14 % |
|
My gift would cause family conflict |
5 % |
Milestone or special occasion that parents gave or would give a significant financial gift to children or grandchildren:
|
When my child buys his/her first home |
23 % |
|
For my child's marriage/union or co-habitation with a partner |
16 % |
|
When my child moves out on their own |
10 % |
|
For my child's graduation from college or university |
9 % |
|
At the birth of a grandchild |
5 % |
|
None, I did not or would not tie the gift to a specific milestone |
38 % |
Percentage of all Canadians' responses when asked 'what taxes exist on financial gifts to a child or relative in Canada?':
|
I don't know |
57 % |
|
None, there are no taxes on monetary gifts* |
31 % |
|
The entire gift would be taxed as income to the recipient |
5 % |
|
Any amount over $14,000 per year would be taxed as income to the recipient |
4 % |
|
Any amount over $14,000 per year would be taxed to you |
2 % |
* Indicates correct response
About the CIBC Gifting Poll:
From June 29 to June 30, 2017 an online survey was conducted among 3,021 randomly selected Canadian adults who are Angus Reid Forum panellists. The margin of error—which measures sampling variability—is +/- 1.6%, 19 times out of 20. The results have been statistically weighted according to education, age, gender and region (and in Quebec, language) Census data to ensure a sample representative of the entire adult population of Canada. Discrepancies in or between totals are due to rounding.
About CIBC
CIBC is a leading Canadian-based global financial institution with 11 million personal banking, business, public sector and institutional clients. Across Personal and Small Business Banking, Commercial Banking and Wealth Management, and Capital Markets businesses, CIBC offers a full range of advice, solutions and services through its leading digital banking network, and locations across Canada, in the United States and around the world. Ongoing news releases and more information about CIBC can be found at www.cibc.com/ca/media-centre or by following on LinkedIn (www.linkedin.com/company/cibc), Twitter @CIBC, Facebook (www.facebook.com/CIBC) and Instagram @CIBCNow.
SOURCE CIBC
