Kevin Dick and Rebecca Friesen have always been savers. But the married Winnipeg couple in their 40s have sought to do more with their money than just build a retirement nest egg.
They've also been spreading their wealth around to make positive changes in the world.
"We were always taught that saving and giving to charity were more important than spending," says Mr. Dick, 45, who owns a grain exporting business.
As they have become more successful in their careers – and confident in their retirement plans – Mr. Dick and Ms. Friesen are increasingly focused on giving back to their community, donating more than $10,000 annually to the United Way.
"By giving money now as opposed to just leaving it until after we die, we can get involved in how it's being used and see the benefits that it brings," says Ms. Friesen, a 44-year-old occupational therapist.
Although younger than most, the couple are among a growing number of Canadians who have accumulated significant financial assets over their lifetime and are strategically gifting large sums of money – either to charity or family – rather than leaving it behind, says Patrick O'Connor, a wealth-planning specialist and president of Blackwood Family Enterprise Services in Winnipeg.
"There's much more movement here than in the past," says the financial planner who helps family businesses manage intergenerational wealth.
Mr. O'Connor points to an initiative in the United States – givingpledge.org – in which several of the world's most wealthy individuals have promised to give away more than half of their wealth during their lifetime or in their will, including Warren Buffett, Elon Musk and Charles Bronfman.
Most recently, Facebook founder Mark Zuckerberg made headlines vowing to give to charity almost all of his stock in the company – worth about $45-billion (U.S.).
Yet it's not just ultra-high-net-worth individuals giving away substantial sums while living, says Jamie Golombek, managing director of tax and estate planning at CIBC Wealth Advisory Services. "We also are seeing a lot of retired clients with excess money they're never going to spend in their lifetime."
The potential transfer of wealth is enormous.
According to a BMO Investorline study from last year, Canadians are expecting the largest intergenerational wealth transfer in our history, more than $1-trillion in assets.
Rather than leave it in the will, many choose to give large portions away while living to witness the fruits of their generosity, Mr. Golombek says.
And helping out their adult kids is often a top priority – including helping them purchase a first home. "In major urban centres like Toronto, where homes are very expensive, parents really do have to help out their kids if they want to see them get any kind of decent real estate."
Besides the obvious benefit of helping others, gifting large sums can also provide the giver with significant tax advantages.
Retirees may have substantial capital sitting in low-interest savings taxed at the highest marginal rate.
"They're paying up to 50-per-cent tax on their interest income, and this is money they will never spend in their lifetime, yet their children often still have mortgages," Mr. Golombek says.
"The interest the parents are earning is fully taxable, so why wouldn't a parent who has extra money make a gift in their lifetime to help their kids out?"
In doing so, he adds, the family is increasing its overall net wealth, using a highly taxable asset earning low interest to eliminate a source of debt often bearing a higher interest rate.
Moreover, unlike in the United States, Canada has no "gift tax." Any amount of cash – earning interest – outside a registered account can be transferred to family without negative tax consequences. The same cannot be said about investments that have gained in value. Taxes still apply on capital gains even when transferred in kind to family as Canada Revenue Agency considers a deemed disposition upon making the gift.
Yet families can strategically sell an asset with a taxable capital gain to realize a lower tax bill now as opposed to leaving it as part of the estate when 50 per cent of the gain may be taxed at the highest marginal rate as part of the final return, says Evelyn Jacks, president of the Knowledge Bureau and author of Essential Tax Facts.
"You can control when you give an asset and the resulting tax consequences when you are alive, whereas a deemed disposition at death is usually beyond your control."
Yet it's important to consider the negative consequences, too, Mr. O'Connor says.
"If you're going to give $1-million to charity or your kids while alive, you better be darn sure you're okay yourself first."
A lack of certainty in this respect often makes families reluctant to gift wealth. Working with a financial planning professional to forecast income over the course of a long retirement can provide clarity, he adds.
With a comprehensive plan, a family can determine how much to give to family and charity, and do so strategically to maximize tax efficiency, particularly when it comes to charitable giving.
"In fact, it's much better to give to charity while you're alive because you have the ability to use the tax credit," Mr. Golombek says. "In the year of death, you can use the credit in the final year of death and the previous year, but if you make a donation while you're alive, you can use it this year or carry it forward for five years."
For Ms. Friesen and Mr. Dick, however, the tax credits are an afterthought.
"The primary motivation is it's the right thing to do," Mr. Dick says. "We want the less fortunate to have as many opportunities as they can."
Generosity has limits (tax-wise)
While no limits exist on how much can be given to family or others (applicable taxes aside), the amount of cash donated to charity only attracts a tax credit up to a certain level, says Ms. Jacks, the tax expert and author. "You can give any amount but in general, you are limited in your claim to a maximum of 75 per cent of net income," she says, adding that amount increases to 100 per cent of net income in the year of death.
What's it worth?
The donation tax credit at the federal level is 15 per cent on the first $200 and 29 per cent for higher amounts. On the provincial side, the credit varies by province. For example, in Ontario, the credit is 5.05 per cent on the first $200 and 11.16 per cent thereafter. On a donation of $1,000, the total, combined tax credit would be $361.38.