Tim Cestnick is president of WaterStreet Family Offices, and author of several tax and personal finance books. tcestnick@waterstreet.ca
Last year a friend of ours faced a lot of difficulties. She went through a difficult divorce, among other things. She had worn a wedding ring for more than 20 years, and had been feeling strange not having a ring on her finger. Her daughters recognized this and for Christmas last year they bought her a "mother's ring," which was set with her birthstone and the birthstones of her two daughters next to hers. She wears it every day.
Now, I'm not sure I've ever given a gift quite that meaningful. Maybe I lack creativity when it comes to gift-giving, which I've shared before. The Santa toilet seat cover with the matching floor mat didn't cut it last year. Are you looking for last-minute gift ideas for your family? Why not consider a financial gift that will not only enrich the lives of your family but will help you from a tax and estate planning perspective? Here are some ideas for you.
1. Give cash. Simply giving cash to an adult child or other family member may not be as meaningful as a mother's ring, but can still go a long way to helping your family member. My preference is to see that money used for the purchase of assets (perhaps a down payment for a home) as opposed to covering costs of living; there will be more to show for those dollars later this way (not that you can control how that money is used necessarily, but letting your wishes be known is fair).
2. Give securities. Take a look at your portfolio. If you transfer to your child or other family member securities that have dropped in value, you'll be able to claim a capital loss on that transfer, which can save or recover taxes otherwise paid on capital gains. You might also give securities that have appreciated in value, but you'll be deemed to have sold those securities at fair market value, which could trigger a tax hit (perhaps you have other capital losses to use up making this idea just fine). By moving assets out of your name, you'll also reduce potential taxes and probate fees that might be owing at the time of your death.
3. Give the family cottage. There are a number of families in which a child, or the children, use the cottage more than mom and dad. Transferring ownership of a cottage should not be done without careful consideration and professional advice, but making this transfer can be very meaningful for the kids, and can reduce taxes and probate fees ultimately owing at the time of death. You may need to use your principal residence exemption to shelter a transfer from tax since it will be deemed to be a sale to the kids at fair market value. The individual will need to consider whether they want to use the exemption on the cottage or save it for the city home. A visit to a tax pro is a good idea to discuss it.
4. Give life insurance proceeds. Purchasing a life insurance policy with your child or other family members as beneficiaries can provide a significant financial legacy to them upon your death. It won't benefit them today, but they will thank you later. Perhaps you have an existing policy and want to reconsider who the beneficiaries are, making changes where appropriate.
5. Give a donation receipt. If your children or other family don't have the means to give to charity, consider providing them with the cash to make a meaningful gift to a cause they believe in. They'll help a good cause and will receive a donation receipt providing tax relief at the same time. The 2013 federal budget also introduced a "first-time donor's super credit" that will provide enhanced tax relief (an additional 25 per cent credit on up to $1,000 of donations) for those making their first donations to charity. An individual will be considered a first-time donor if neither the individual nor the individual's spouse or common-law partner has claimed a donation tax credit in any tax year after 2007.
6. Give investing experience. Why not teach your children or grandchildren how to invest by depositing some cash in a brokerage account for them to invest. If the kids are minors, you can set up an account in an adult's name, in trust for that child. Engage them in making decisions about how that money should be invested. If the child is an adult, there should be no attribution of income back to you. In the case of minors, any capital gains earned in the account will be taxed in the child's hands, but interest and dividends will be attributed back to you, so focus on growth investments in this case.
Tim Cestnick