Most Canadians with adult children say they’re prepared to help them financially – with gifts worth over $20,000, according to a new CIBC poll.
A whopping 76 per cent of Canadians with kids aged 18 and older say they stand ready to provide some financial oomph to help them buy a house, pay for their wedding or reach other life milestones.
And most parents are quite generous. The average intra-family donation is $24,000, but those with incomes above $100,000 generally give over $40,000. As many as 25 per cent of those surveyed reported gifts of over $50,000.
In part that might be because Canadians would much rather help their kids become independent that have them in the house as adults.
The poll found that wholly 65 per cent of parents prefer to cut their offspring a fat cheque than share the same roof.
As young adults struggle to find stable and well-paid jobs, multigenerational households are becoming increasingly common in North America. Over 60 million Americans, or 19 percent of the U.S. population, reported living in one in 2014, according to a Pew Research Center analysis.
In Canada, the percentage of people between the ages of 20 and 29 who are living at home with at least one parent stood at 42 per cent in 2011, up from 27 per cent in 1981, according to the latest available data from Statistics Canada.
Apparently, though, Canadian boomers aren’t wild about the idea. For those who can afford it, financial help is a better option.
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More than half of those surveyed said they have already given a significant gift or early inheritance to their progeny. Over a third said they did so because their children or grandchildren “need the money now.” Roughly a quarter said they “take pleasure” in being able to see their kids and grandchildren enjoy their gifts, while 11 per cent said they felt obligated to step in financially.
But the cash doesn’t always come out of mom’s and dad’s own pockets. Some are passing on part of the inheritance that their own parents left.
That trend seems set to grow. Over the next decade, Canada’s baby boomers are expected to inherit an estimated $750 billion, according to a CIBC Capital Markets research. And a good chunk of that will likely skip a generation and trickle down to young gen. Xers and millennials. Nearly 75 per cent of parents aged 55 and over are ready to pass some or all of their inheritance on to younger generations, the poll found.
But do Canadian parents really understand the implications of financial gifts?
According to the poll, 68 per cent of them don’t.
The pros and cons of financial gifts
Financial gifts have their advantages. People generally receive inheritances later in life, when they are already financially established. But boomers are increasingly using gifts to help their children when they face life’s steepest upfront costs, such as buying a house or having a baby.
And while passing on money and assets after you die is usually subject to taxes and fees, gifts are generally tax-free.
“Unlike in the U.S., we don’t have any kind of gift tax,” said Jamie Golombek, managing director of tax and estate planning at CIBC Wealth Strategies Group.
Gift recipients pay no income tax on their gift, though transfer or sales taxes may apply to gifts of real estate and vehicles.
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On the downside is the fact that once you give a gift, you can’t control what your beneficiaries do with it.
The taxman in Canada takes a dim view of “gifts” that come with strings attached. In order to be tax-free, your gift must be a real gift – not a conditional loan.
This makes many Canadians uncomfortable. Half of parents surveyed in the CIBC poll said they want to have a say on how their financial gift is used, with nearly 30 per cent saying they worry that their kids won’t use the money wisely.
These parents might be better off lending the money, rather than gifting it. For example, if they wish to help their child buy a home but want to protect their funds in case of marital breakdown, they can use a loan secured by an interest-free mortgage on the property, according to CIBC. The mortgage can then be forgiven at a later date.
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The other issue with gifts is that you can’t get the money back.
That’s why it’s important to only donate what Golombek calls “‘never money’ – money you’ll never spend in your lifetime.”
It might be worth sitting down with a financial adviser to figure out exactly how much that is, before you make a gift you might later regret.
The CIBC poll was conducted on June 29 and June 30 via an online survey of 3,021 randomly selected Canadian adults who are Angus Reid Forum panellists. The margin of error is +/- 1.6 per cent, 19 times out of 20.