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In estate planning, most people focus on how to disburse their fortunes once they're dead and gone. Others choose instead to spread the wealth while they are alive.

The idea of giving money away early and being able to see children or grandchildren enjoy it is becoming more popular, says Lisa Handfield, estate planner at MacMillan Estate Planning Corp. in Calgary.

For example, the increasingly unaffordable real-estate markets in Vancouver and Toronto are making some people give it away now.

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"Getting the kids into their first place or getting them into a bigger house are very common," says Ms. Handfield. "Being able to see the impacts and changes in their kids' and grandkids' lives, that's the main driver."

Parents are also giving money to their children for family vacations or postsecondary education.

While it may be emotionally satisfying to enhance a loved one's life with a financial boost, parents gain other advantages in passing on portions of their estate during their lifetime.

Potential tax breaks are one of them.

Because an estate would be worth less at death if the parents gave some of it away now, the income tax levied would be smaller. Plus, a smaller estate would result in lower probate fees if probate is required.

It's important to document the gift in writing, so the donor's intention is clear, notes Terry Loptson, a Vancouver lawyer with DuMoulin Boskovich LLP. Otherwise, someone could claim it was a loan or not a true voluntary gift but rather obtained under undue pressure – and thus it would be held in trust by the recipient to be returned to the donor or the donor's estate.

"We would normally prepare a deed of gift to be signed by the donor," Mr. Loptson says. "The donor's will should also state whether the gift is to be taken into account when distributing the donor's estate."

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If it's a gift other than cash, Mr. Loptson suggests checking with an accountant in advance, as there may be consequences such as the capital gains tax or property transfer tax.

The give-while-you're-living approach to distributing family wealth comes with other caveats. The most obvious is running out of money. Life circumstances change, sometimes unexpectedly and expensively so.

Full-time home care can cost as much as $250,000 a year, Ms. Handfield says. If you need to travel to the United States or a private clinic for surgery, you could be looking at tens of thousands of dollars.

"Those are some of the things people need to keep in mind when they're thinking, 'Can I really afford to do this?'" she cautions. "Some people say, 'If I get stuck my kids will gift it back to me.' I could never put a client in a position like that. You need to assume you will never get the money back."

One way around these difficulties, Ms. Handfield says, is the use of a promissory note, a written, signed, unconditional promise to pay a certain amount of money on demand at a specified time. It allows people to detail how much money they're giving and for what purpose, and provides them the legal means to get the money back.

"It gives you an element of control," Ms. Handfield says. "I like that a lot better than a gift."

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Another potential pitfall to gift-giving is that the giver cannot control how it might be spent.

When giving money to married children, or instance, the funds may be partially lost in the case of a divorce if it is intermingled with family assets, depending on provincial laws, says Noel D'Souza, a certified financial planner with Money Coaches Canada.

Many of Mr. D'Souza's clients opt not to give away money during their lifetime because they don't want to be a financial burden to their kids later in life.

One exception, however, is for a child's wedding or a down payment on a home, Mr. D'Souza says. "In this case, the parents recognize that their children may not be fully on their feet yet and could use some extra funds to help them launch their lives."

Clients with grandchildren may want to contribute toward their RESPs, he adds, "especially if they know their adult children are likely cash-strapped due to the demands of raising a young family."

Those considering giving away an asset during their lifetime should work with a financial planner to anticipate their needs through retirement, including what can go wrong and how much should be kept in reserve, Mr. D'Souza says. Among the factors to consider are a financial crash, a debilitating illness that requires expensive care, or a late-in-life divorce.

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If you're aware of all the scenarios that could unfold and you decide to proceed, do so and then move on.

"Once you've given the asset or money away, relax," he says. "Don't stress about it."

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