My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, August 21, 2017

The Best of The Blunt Bean Counter - Transferring the Family Cottage - Part 3

In the final post of my three-part blog series on transferring the family cottage, I discuss some of the alternative strategies available to mitigate or defer income taxes that may arise upon the transfer of the cottage to your children. Unfortunately, none provide a tax "magic bullet".

Part 3 – Ways to Reduce the Tax Hit


The following alternatives may be available to mitigate and defer the income taxes that may arise on the transfer of a family cottage.

Life Insurance

Life insurance may prevent a forced sale of a family cottage where there is a large income tax liability upon the death of a parent, and the estate does not have sufficient liquid assets to cover the income tax liability. The downside to insurance is the cost over the years, which can be substantial. In addition, since the value of the cottage may rise over the years, it may be problematic to have the proper amount of life insurance in place (although you can over-insure initially or if your health permits, increase the insurance at a later date). I would suggest very few people imagined the quantum of the capital gains they would have on their cottages when they initially purchased them, so guessing at the adequate amount of life insurance required is difficult at best.

Gift or Sale to Your Children

As discussed in Part 2, this option is challenging as it will create a deemed capital gain, and will result in an immediate income tax liability in the year of transfer if there is an inherent capital gain on the cottage. The upside to this strategy is that if the gift or sale is undertaken at a time when there is only a small unrealized capital gain and the cottage increases in value after the transfer, most of the income tax liability is passed on to the second generation. This strategy does not eliminate the income tax issue; rather it defers it, which in turn can create even a larger income tax liability for the next generation. Since many cottages have already increased substantially in value, a current sale or transfer to your children will create significant deemed capital gains, making this strategy problematic in many cases.

If you decide to sell the cottage to your children, the Income Tax Act provides for a five-year capital gains reserve, and thus consideration should be given to having the terms of repayment spread out over at least five years.

Transfer to a Trust

A transfer of a cottage to a trust generally results in a deemed capital gain at the time of transfer. An insidious feature of a family trust is that while the trust may be able to claim the Principal Residence Exemption ("PRE"), in doing so, it can effectively preclude the beneficiaries (typically the children) of the trust from claiming the PRE on their own city homes for the period the trust designates the cottage as a principal residence.

This paragraph is an update to the original 2011 post. A reader of the blog recently asked a question on life and remainder interests in a cottage. When gifting or using a trust, you can transfer ownership of your cottage to your children, while still keeping a "life interest" in the cottage, which allows you continued use of the cottage and the income from the property (if any) for the rest of your life. However, the transfer/gift to the trust still triggers a capital gain for tax purposes. You are essentially just ensuring you have access and use of your cottage and the future increase in the cottage value accrues to your children from the date of the transfer. This is a complicated topic and beyond my area of expertise. You should consult your lawyer in tandem with your accountant to ensure you understand the issues in your specific situation in using a life transfer and remainder interest.

If a parent is 65 years old or older, transferring the cottage to an Alter Ego Trust or a Joint Partner Trust is another alternative. These trusts are more effective than a standard trust, since there is no deemed disposition and no capital gain is created on the transfer. The downside is that upon the death of the parent, the cottage is deemed to be sold and any capital gain is taxed at the highest personal income tax rate, which could result in even more income tax owing.

The use of a trust can be an effective means of sheltering the cottage from probate taxes. Caution is advised if you are considering a non-Alter Ego or Joint Partner Trust, as on the 21-year anniversary date of the creation of the trust, the cottage must either be transferred to a beneficiary (should be tax-free), or the trust must pay income taxes on the property’s accrued gain.

Transfer to a Corporation

A cottage can be transferred to a corporation on a tax-free basis using the rollover provisions of the Income Tax Act. This would avoid the deemed capital gain issue upon transfer. However, subsequent to the transfer the parents would own shares in the corporation that would result in a deemed disposition (and most likely a capital gain) upon the death of the last surviving parent. An “estate freeze” can be undertaken concurrently, which would fix the parent’s income tax liability at death and allow future growth to accrue to the children; however, that is a topic for another time.

In addition, holding a cottage in a corporation will result in a taxable benefit for personal use and will eliminate any chance of claiming the PRE on the cottage for the parent and children in the future so this alternative is rarely used.

In summary, where there is a large unrealized capital gain on a family cottage, there will be no income tax panacea. However, one of the alternatives noted above may assist in mitigating the income tax issue and allow for the orderly transfer of the property.

I strongly encourage you to seek professional advice when dealing with this issue. There are numerous pitfalls and issues as noted above, and the advice above is general in nature and should not be relied upon for specific circumstances.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Monday, August 14, 2017

The Best of The Blunt Bean Counter - Tranferring the Family Cottage - Part 2

In the second installment of my April, 2011 three-part series on transferring the family cottage, I discuss the income tax implications of transferring or gifting a cottage to your children. Many people are unaware these gifts or sales, often create an immediate income tax liability.  

Part 2 – Tax Issues


As discussed in Part 1 of this series, you can only designate one property as a principal residence per family after 1981. In order to explore the income tax implications associated with transferring ownership of a cottage, I will assume both a city residence and a cottage have been purchased subsequent to 1981, and I will assume that the PRE has been fully allocated to your city home and the cottage will be the taxable property.

Many parents want to transfer their cottage to their children while they are alive, however any gift or sale to their children will result in a deemed capital gain under the Income Tax Act equal to the fair market value (“FMV”) of the cottage, less the original cost of the cottage, plus any renovations to the cottage. Consequently, a transfer while the owner-parent(s) is/are alive will create an income tax liability where there is an unrealized capital gain (i.e. Your cottage is worth $500,000 and the cost is $200,000, you will have a $300,000 capital gain even though you did not actually sell the cottage).

Alternatively, where a cottage is not transferred during one parent’s lifetime and the cottage is left to the surviving spouse or common-law partner, there are no income tax issues until the death of the surviving spouse/partner. However, upon the death of the surviving spouse/partner, there will be a deemed capital gain, calculated exactly as noted above. This deemed capital gain must be reported on the terminal (final) tax return of the deceased spouse/partner.

Whether a gift or transfer of the cottage is made during your lifetime, or the property transfers to your children through your will, you will have the same income tax issue: a deemed disposition with a capital gain equal to the FMV of the cottage, less its cost.

It is my understanding that all provinces (with the exception of Alberta, Saskatchewan, and parts of rural Nova Scotia) have land transfer taxes that would be applicable on any type of cottage transfer. You should confirm whether land transfer tax is applicable in your province with your real estate lawyer.

So, are there any strategies to mitigate or alleviate the income tax issue noted above? In my opinion, other than buying life insurance to cover the income tax liability, most strategies are essentially ineffective tax-wise as they only defer or partially mitigate the income tax issue. In Part 3 of this series I will summarize the income tax planning options available to transfer the family cottage.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Monday, August 7, 2017

The Best of The Blunt Bean Counter - Transferring the Family Cottage - Part 1

In April 2011, I wrote a  three-part series on transferring the family cottage for the Canadian Capitalist blog. Since many Canadian's are at their cottage and the topic is apropos, I will re-post the blogs over the next three weeks,

Part 1 deals with the historical nature of the income tax rules, while Part 2 will deal with the income tax implications of transferring or gifting a cottage, and finally in the third post, I discuss alternative income tax planning opportunities that may mitigate or defer income tax upon the transfer of a family cottage.

Part 1 – There Is No Panacea


Canadians love their cottages. They are willing to put up with three-hour drives, traffic jams, never-ending repairs and maintenance, and constant hosting duties for their piece of tranquility by the lake. However, I would suggest the family cottage is one of the most problematic assets for income tax planning purposes, let alone the inherent family politics that are sure to arise.

For purposes of this discussion, I will just assume away the family politics issue. I will assume the children will each grab a beer, sit down at a table, and work out a cottage-sharing schedule to everyone’s satisfaction; and while they are at it, agree on how they will share the future ownership of the cottage when their parents transfer the cottage or pass away. I would say this is a very realistic situation in Canada, not!!!

Let’s also dismiss any illusions some may harbour that they can plan around the taxation issues related to cottages (or even avoid them entirely). I can tell you outright that there is no magical solution to solving the income tax issues in regard to a family cottage, just ways to mitigate or defer the issues. Many cottages were purchased years ago and have large unrealized capital gains.

So let’s start by taking a step back in time. Up until 1981, each spouse could designate their own principal residence (“PR”) which, in most cases, made the income tax implications of disposing or gifting a family cottage a null and void issue. The “principal residence exemption” (“PRE”) in the Income Tax Act essentially eliminated any capital gain realized when a personal use property was sold or transferred. Families that had a home in the city and a cottage in the country typically did not have to pay tax on any capital gains realized on either property when sold or gifted.

However, for any year after 1981, a family unit (generally considered to be the taxpayer, his or her spouse or common-law partner, and unmarried minor children) can only designate one property between them for purposes of the PRE. Although the designation of a property as a PR is a yearly designation, it is only made when there is an actual disposition of a home (New rules have been put in place in respect to selling your PR, see this blog I wrote on the topic in Oct, 2017).

For example, if you owned and lived in both a cottage and a house between 2001 and 2011 and sold them both in 2011, you could choose to designate your cottage as your PR for 2001 to 2003 and your house from 2004 to 2011, or any other permutation plus one year (the Canada Revenue Agency [“CRA”] provides a bonus year because they are just a giving agency).

In order to decide which property to designate for each year after 1981, it is always necessary to determine whether there is a larger gain per year on your cottage or your home in the city. Once that determination is made, in most cases it makes sense to designate the property with the larger gain per year as your personal residence for purposes of the PRE. 

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Monday, July 31, 2017

The Best of The Blunt Bean Counter - Capital Dividends - A Tax-Free Withdrawal from your Company

This summer I am posting the "best of" The Blunt Bean Counter blog while I work on my golf game (which is not going well by the way, as my handicap has gone up 3 strokes since the beginning of the year). Notwithstanding my handicap increase, I just came back from an awesome trip to Cabot Links. The picture below of the 16th hole at Cabot Cliffs is a bit deceiving since the tee is actually to the left and further up, but it is a blind shot to a two tier green so no day in the park. Plus, when the wind blows it is crazy. The first day with no wind I actually hit to within 15 feet of the pin, the next day with huge winds I aimed ten yards out to the ocean and the ball still blew left of the green, pretty crazy.


Anyways, back to the topic at hand. Next week I start a three-part series on cottages, but today, I am re-posting a March 2015 post that discussed how small corporate business owners can take advantage of the Capital Dividend Account ("CDA"). Given I had over 80 comments, it was of definite interest.

As per my post last week, Tax Planning Using Private Corporations - The New Liberal Proposals there may be future tax changes that impact the CDA. However, at this time, I cannot state with any certainty how those changes may impact the CDA account. 


Capital Dividends - A Tax-Free Withdrawal from your Company


If you are a private corporate business owner, you may be sitting on a treasure trove of tax-free money. Yes, I said tax-free money. The source of these “free” funds is the CDA, which I discuss in greater detail below. Although a CDA account is most often found in holding/investment companies, the largest accounts are often generated in active companies who have sold all or part of their business.


Private business owners often discuss with their professional advisors whether they should take salary and/or dividends, which are both taxable to the owner when paid. However, surprisingly, the possibility of paying a tax-free dividend is often overlooked, which is possible if the dividend is paid from the Capital Dividend Account (“CDA”) of a private corporation to a Canadian resident individual.

The Capital Dividend Account


The CDA tracks certain amounts that are not taxable to the Company and may be distributed to shareholders with no personal tax. For example:

(i) if the company earns a capital gain which is 50% taxable, the half that is not taxable is added to the CDA.

(ii) if the company was paid a capital dividend from another company it invested in, that amount is not taxable and is added to the CDA.

(iii) if the company sells a particular eligible capital property (“ECP”) in the year, the portion of the gain that is not taxable is added to the CDA. Please note that the addition to the CDA occurs at the end of the year in which the sale of the ECP took place. As a result, the CDA cannot be paid out tax-free until the first moment of the following taxation year (there have been significant changes to the ECP rules since I wrote this post, please speak to your accountant. For reference, I wrote this blog post on the changes).

(iv) if the company receives proceeds from a life insurance policy which are considered to be non-taxable, this is added to the CDA.

(v) if the company incurs a capital loss, 50% of such amount that will not be deductible in the current or future years against capital gains and will reduce the CDA.

Filing and Declaring a Capital Dividend


The following are the filing procedures and considerations as to the timing of declaring a capital dividend:

i) For the dividend to be tax-free, the company needs to make an election on Form T2054 - Election for a Capital Dividend Under Subsection 83(2), which is due to be filed with the Canada Revenue Agency on or before the earlier of the day that the dividend is paid or becomes payable.

A certified copy of the Director(s) resolution authorizing the capital dividend and a detailed calculation of the CDA at the earlier of the date the capital dividend is paid or becomes payable must accompany the Form T2054.

If the Form T2054 and attachments are filed late, a penalty will arise.

ii) If the Canada Revenue Agency reviews the election and determines that the capital dividend paid (or declared) was too high, then a penalty, equal to 3/5 of the excess of dividend over the CDA balance available, will arise.

It is possible to avoid such penalty if an election is made to treat the excess portion as a taxable dividend at the time it is paid, and such election is filed within 90 days after the date of the notice of assessment in respect of the tax on the excess, noted above.

To avoid these negative consequences, it is important to properly calculate the CDA.

iii) The CDA is a cumulative account from the date of incorporation (assuming it has always been a private corporation). If the company has not previously filed a Form T2054, it will be necessary to review the historical capital gains and losses and corporate activities from the date of incorporation to the date of the dividend in order to determine the correct CDA balance.

iiii) The CDA is paid at a moment in time. If you have a CDA balance but incur a loss the next day, your CDA balance is reduced. Thus, in general, it is prudent to pay a CDA dividend when the account reaches a material amount (this amount is different to each person) so that you do not take the risk of a capital loss reducing the balance in the account. If you pay a capital dividend and then incur a capital loss, the account can go negative.

Further analysis may be required for any non-resident shareholders, since a payment from the CDA to a non-resident of Canada is subject to non-resident withholding tax and the dividend may be taxable in their country of residence.

Journal Entries


Some companies reflect capital dividends by adjusting journal entry (“AJE”), rather than paying the actual dividend. Where the dividend is paid by AJE, the shareholder loan is credited. This creates a tax-free loan owing from the company to the shareholder. The CRA has stated that an AJE on its own does not constitute payment of the funds and that a demand promissory note accepted by the recipient as absolute payment together with an indication of such an intention in the resolutions is at a minimum required to have the dividend considered paid and received.

Balance Determination


Where a company has had more than one accountant and/or has amalgamated with other corporations in the past, the determination of the CDA can be problematic. The CRA now allows you to file Schedule 89 to help your verify the account. Note, they may only verify part of the years, so for older companies, this may still be problematic.

Speak with your accountant to see if your private company has a CDA balance. If so, paying out a capital dividend should be considered as part of your Company’s overall remuneration strategy.

 
This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Monday, July 24, 2017

Tax Planning Using Private Corporations - The New Liberal Proposals

I am going to set aside my summer "Best of The Blunt Bean Counter" series for one week, to provide my comments on the new tax proposals for private corporations set forth by the Liberal government last week.

Tax Planning Using Private Corporations - The New Liberal Proposals


On July 18th, Finance Minister Bill Morneau released a consultation paper and related draft legislation proposing changes to how private corporations will be taxed moving forward in the name of tax fairness. I would suggest most private business owners and professionals using PC's in particular (the government seems to take umbrage with professionals) are going to be very upset by these proposals.


Fairness is subject to personal interpretation. I could argue it is not fair government workers get gold plated pension plans while the rest of us have no company plans or restricted defined contribution plans and need to save for retirement through RRSPs and TFSAs. I could also argue that is not fair entrepreneurs who risk their life savings will now under these proposals end up tax neutral with their employees who take no risk. Rant over, let's get to the proposals

Income Splitting


Many private business owners pay salaries to family members and have structures where family members own shares. The government is proposing that effective for 2018 and later, any salaries or dividends paid to a spouse or child regardless of age (currently there are kiddie tax rules for children under 18) will be subject to a reasonableness provision (what an arms-length person would be paid) and any remuneration in excess of the reasonable amount will now be taxed at the top marginal personal rates of the parent. How the government will determine reasonableness is a good question. In any event, income splitting will be severely curtailed

Some specific reasonableness proposals include:

1. Determination of labour contributions by children. The rules will be different for those 18-24 than for those are 25.

2. Review of capital contributed to the business. Again based on age bracket tests.

These rules will significantly change how many families remunerate the family unit.

In addition to restricting salaries and dividends, the proposals will also restrict the use and multiplication of the capital gains exemption ($835,716 for 2017). Children under 18 will no longer qualify for the LCGE ("Lifetime Capital Gains Exemption") and for other family members that were subject to the reasonableness provisions; the LCGE will be restricted or eliminated.

Capital gains allocated out of a family trust will now generally not be eligible for the LCGE.

These rules will be effective for 2018, however, transitional rules are being proposed.

Passive Investments in Corporations


Currently if a corporation earns less than $500,000 the company pays tax at 15.5% in Ontario and a similar amount in each province. This results in a tax deferral, not a tax saving of up to 38%. This deferral provides corporations money to grow and invest and create jobs. The government is concerned that where this money is not used to grow the company but invested passively in GIC's stocks, others companies, real estate, etc. it is unfair when compared to a salaried person. The government is proposing to now tax this 38% deferral.

The proposals of how to do this are beyond complicated and I really don't understand the concern here (the government is asking for feedback to determine to how best implement this, thus, there is no timeline on these provisions as of yet). This is a tax deferral on risk capital and not an absolute tax saving. As per my various posts on whether to use a RRSP or leave the money in your corporation, many small biz owners are leaving money in their corporations and using this money to fund their retirement; so this will have a huge impact on many people.

Converting income into capital gains


The proposals include various provisions to prevent income from being converted into capital gains. I have no issue with this general provision as much of the planning is a pure tax play. However, as of now, some tax commentators suggest the proposals appear to have potentially created possible double tax on death where standard "pipeline planning" is undertaken. Essentially where the estate would have had a capital gain, that gain may become a dividend which is taxed 15-20% higher than the capital gain. Many private business owners have purchased insurance to cover their estate tax and the insurance may now be insufficient.These measures will be effective as of July 18, 2017.

What Now?


The proposals are very complex and I have simplified them for discussion purposes above. We need to see the final legislation after the consultation period and work through the implications before definitive answers and planning can be undertaken.

That being said, will you have to close down or wind-up your private corporation or professional corporations or wind up your family trust?

My preliminary thoughts are if your corporation has large retained earnings there would be a significant tax cost to wind up your corporation and thus you would likely still maintain the company (I say this because it appears the proposals will not impact prior earnings and/ or prior refundable taxes earned and thus, these retained earnings would not be subject to the potentially punitive rules). If your company's retained earnings are not significant, the answer will be less obvious and there will be other issues to consider such as asset protection and the adjusted cost base of partnership interests for professional corporations etc.

While new corporations will not have the same income splitting and tax deferral benefits, they will still likely make sense for asset protection purposes and if you may be able to access even one LCGE exemption and /or you will be using profits to invest back in the business and not for passive purposes.

The incorporation of new professional corporations likely will no longer make sense for tax deferral purposes if all the PC income is taxed at the highest marginal rate, but they may still make sense for other reasons, but I would expect their use to be curtailed.

Family Trusts will likely continue to make sense for ownership and estate planning purposes but may no longer be useful for tax only purposes

It is too early to definitively answer any of the above questions, but those are my initial thoughts.

In conclusion, the impact of these proposals is potentially massive. This is in essence a regime change and not a tinkering of the current rules. Unfortunately, I don't think most small business owners have any idea what is about to hit them in the next few months.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Tuesday, July 18, 2017

The Best of The Blunt Bean Counter - Taking it to the Grave or Leaving it all to your Kids?

This summer I am posting the "best of" The Blunt Bean Counter blog while I work on my golf game. Today, I am re-posting a July 2011 post (originally written as a guest post for The Canadian Capitalist) on estate planning and the four groups (at the risk of stereotyping) that people seem to fall into, when dealing with their estate.

Next week I will have a re-post of  a blog on accessing the capital dividend account for those of you that have private corporations and then a three-part series on a true summer topic - the tax issues surrounding the sale and/or transfer of your cottage.

Taking it to the Grave or Leaving it all to your Kids?


I am often engaged to provide estate planning. Many "older" Canadians have amassed great wealth (some just through the sale of their home and/or cottage). A 2006 Decima Research study estimated that over one trillion dollars in wealth could be transferred between 2006-2026. After twenty-five years of discussions regarding the distribution of wealth, where an estate will clearly have excess funds when the parents pass away (to be clear, this post is only discussing situations where you are very certain you have more funds than you need to live, not situations where you may have excess funds when you pass away, but are not secure enough to distribute while alive) it is my opinion that the parents should consider partial gifts during their lifetime.


It is my observation from the 25 years of meetings that people form four distinct groups when it comes to distributing their excess wealth:

1. Those that will take their wealth to their grave (or leave it to their pet Chihuahua)
2. Those that will distribute their wealth only upon their death
3. Those that may not be able to afford their grave (as they give and give to their children)
4. The most common, the middle ground of the extremes, those who are willing to distribute their wealth, but in many cases harbour concerns their wealth will be “blown” or lead to unmotivated children.

In this blog, understanding my opinions may be diametrically opposed to some readers, I will talk about these varied groups.

Taking it to the Grave and Leaving Nada to Your Family


For those who wish to take their wealth to the grave, there may be an altruistic or philosophical reason. However, there is more often than not, a deep rooted family issue, and the chill in the room makes it very clear that advisors should stay clear of delving into these family issues (when I initially wrote this post, I was criticized by a reader for saying the advisor should stay clear in these cases. I now think they were correct. I can think of a specific case since I wrote this post in 2011 where I challenged a client on this and they made a change to their will not because they really wanted to, but because the change could possibly help avoid litigation down the road, despite it being distasteful to them). 

Distributing your Wealth upon your Death


In the case of those who wish to distribute their wealth upon their death, the issue is typically philosophical. That is, one or both of the parents feel that their children need to make their own way in the world and that leaving them money during their lifetime will do their children a disservice or destroy their moral compass. This is a touchy area, but I often suggest that if the parents feel their children are well-adjusted, they should consider providing partial inheritances. A partial inheritance can facilitate a child’s dream, such as climbing Mt. Kilimanjaro while the child is physically able, or assist with the down payment on a cottage. The selling point on partial distributions is that the parents can share vicariously in the joy of the experience they facilitate.

Giving your Kids too Much while Alive


In the third situation, the parents spend every spare nickel on their children’s private school, dance lessons, hockey teams, etc., while younger and then assist in buying houses, cars, etc., when their children are older. In these cases I suggest the parents pare back the funds they spend on their children and/or make the children contribute to their own activities. It is imperative the parents impart upon their children that they are not an ATM and that there are family budgetary limits to be adhered to, often easier said than done.

The Balanced Approach


The majority of families fall into the last category. They are willing to distribute their “excess” wealth while alive, but in many cases harbour concerns their wealth will be “blown” or lead to unmotivated children. Dr. Lee Hausner, an advisor to some of the wealthiest families in the United States, suggests in various articles of hers that I have read, that parents do not transfer money during career-building years so the children learn to be productive members of society. Children should be taught they have choices to make (ie: distribute money for one thing they want but not three things they want) and they should learn to be philanthropic amongst other things. I think this advice stands on its own whether you are one of the wealthiest families in the United States or just a family that has been lucky enough to accumulate more assets then you will ever require.

How one distributes their wealth is an extremely private issue and each individual has their own thoughts and reasons for their actions. However, in my opinion, where you have the financial wherewithal, you should consider making at least partial gifts during your lifetime.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Monday, July 17, 2017

Book Giveaway Winners!!

Thank you to everyone who completed the financial/wealth survey linked to my June 19th blog post. The response was great.

The winners are:

1. Richard S.

2. Kelly A.

3. Ken S.

4. Bruce R.

5. Cindy H.

Since I do not publish last names for privacy purposes, there may be more than say one Richard S. However, if you were a winner, you will have already received an email informing you that you won a book and asking you for address details. So if you are a Richard S. that did not win, sorry about that.

Tomorrow I start my "Best of the Blunt Bean Counter" series for the summer.