If you’re going through a rough patch or just want to save money, sometimes living with mom and dad doesn’t sound like a bad idea. But before you get to comfortable, a new study says your parents just may be more willing to give you some cash to move out instead.
According to a new CIBC poll, the majority of Canadian parents (76 per cent) with grown children said they are willing to provide financial support to help their child move out, get married, or move in with a partner.
Out of those parents, 47 per cent said they would help their child in the form of cash, 28 per cent would let their adult child and his/her partner live with them, and 25 per cent would act as a guarantor on a mortgage.
But when asked to choose between letting their adult child and partner live with them, or helping them financially to move out, 65 per cent of Canadian parents would rather give the gift of cash.
While the national average cash gift sits at $24,125, those with household incomes of more than $100,000 gift nearly double that amount ($40,558), with as many as 25 per cent giving over $50,000.
Some parents concerned, others just feel obligated to dish out cash
Though most parents are willing to help their kids out, more than half of those surveyed (55 per cent) have concerns – 40 per cent are worried they may need the money later, and 29 per cent are concerned their child won’t use the money “wisely.”
Last year, CIBC reported that baby boomers are expected to inherit an estimated $750 billion over the next decade. That being said, almost three-quarters (74 per cent) of parents aged 55+ said if they received inheritance today, they would pay it forward by gifting all of it or a portion to their children or grandchildren.
In terms of gifting their own money and assets, the majority of boomer parents still feel obligated to give all their children or grandchildren an early inheritance, with 60 per cent saying they don’t care what their child does with the gift.
How much should parents gift?
Of course, there’s no limit on how much a parent can gift their child, but parents should have an idea of the legal and tax implications that exist – something two thirds of parents surveyed seem to be in the dark about.
“Cash is probably the easiest gift to make, whether by writing a cheque, wire transfer, or e-transfer,” says Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC Wealth Strategies Group. “Alternatively, you may consider making a gift of property ‘in-kind.’ For example, you may wish to transfer securities from your account to your child’s account or transfer legal title of real estate to your kids.”
In his report, “Give a Little Bit,” Golombek explains these types of gifts will be treated as if you have sold the gifted property at fair market value – meaning you will be required to pay a tax on 50 per cent of the capital gains.
A few other caveats to consider:
- Funds taken from an RRSP or RRIF to fund a gift will be subject to a tax at your marginal rate.
- While gift recipients don’t typically pay tax, in most cases they will be required to pay tax on any future income generated by the gift; this can also become a benefit by taking advantage of income-splitting (i.e. transferring income to a person in a lower tax bracket).
- Probate fees upon death (up to 1.7 per cent of assets) reduce the amount available to your beneficiaries.
- Other countries may have fees or taxes associated with gifts.
Generosity makes the world go ‘round, and gifting can be a wonderful thing for all parties involved. But whether you’re the person giving or receiving the gift, it’s important to consider all the implications and plan accordingly.
Though 80 per cent of parents plan on using their own money and savings to fund gifts to their children, over a third said they are willing to take on debt, if needed, to help their kids get a good start.
As a parent, think about your own lifestyle and decide on a level of gifting that won’t interfere with current and future spending needs. For instance, if you need to take on debt to help fund your children’s lifestyle, it may not be a good idea. Talk to a financial planner, develop a plan and stick to it to ensure you don’t gift beyond your means.