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May 3, 2021 | The Folks

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

“Been a follower for over a decade, and truly appreciate your content,” says Jay, dishing up the MSU required to sate me. “Keep it up!”

So J and his wife are Millennials and first generation Canadians. Both sets of parents are in their 70s, retired. His folks are, by national standards, wealthy. Hers are desperate. “I’m sure one of these situations will apply to many of your followers, and would look forward to the guidance,” he said. This is the story…

My parents are in their early 70s and own a paid off property in the GTA. A nice 7 figure, tax-free payday should they chose to cash out. They have hinted of wanting to move in with us in the coming years, way out here in the prairies. My parents have a great pension, and both parents get government cheques for OAS and CPP that easily covers their current expenses. They have about 500k in RRSP investments in MFs and no TFSA.

So, what do we do with the proceeds from the potential real estate transaction? It will eventually likely become inheritance to me and my siblings. How do we go about maximizing the growth while they are still kicking? More importantly, how do we move the money from the boomers to the millennials efficiently?  How do we navigate these waters so we avoid as much taxation as possible, and don’t suddenly fall on expensive lawyer fees and other taxes related to estate transfers at time of passing? Is there any place for large financial gifts to their kids to help us stuff our RRSPs and TFSA’s?

I know there is a will, but not what’s in it. Discussion around it is mute as my parents don’t like to talk about the inevitable future. They also don’t like spending a dime when it is not needed. I also don’t like bringing up these topics with them as they feel we are trying to take away power and control from them.

My other half, well her parents are in a completely separate boat, that seems to be sinking quick. They are in their mid late 70s. They live entirely off government cheques. No pensions. Only 1 of them gets CPP. No assets – just about $50k in cash sitting in savings. They lost all their money in poor investment in the market years back and do not trust going back in it for 1 second. They are fortunate to have a good spot they rent that is stable and very affordable. They live the simplest of lives.

I keep asking my wife to let me invest their cash in a 60/40, one stop ETF, but she keeps on giving me a hard no, and says they don’t want to invest. However, they seem to be open to suggestion on other facets of life. Not sure whether there is a will there (probably something to enquire about). What can I do to help them maintain the value of their money in this inflationary time? Love the blog.”

You might love it less in a few minutes.

First, Jay’s folks should definitely sell the GTA house. Never been a better time to cash in on the idiocy of the masses, who will pay obscene amounts in a blind auction for anything with dirt. If they rent or move in with family they’ll have a seven-figure nestegg that could double in size in a decade or, better still, throw off five grand a month to finance trips and a new Tesla. Given the low rate environment today and the steady reopening of the global economy, a well-managed 60/40 portfolio would work well. Max all TFSA room, sell off the costly mutual funds and dump most into a joint non-registered account so if one parent dies before the other, there’s no taxable event, no probate, no delay.

As for giving the money to the children, lots of options. Kids can be the beneficiaries of a will. Non-registered cash can be moved into their hands without tax, but investment assets (stocks, funds etc.) are deemed to have been sold on the day of death and taxes are payable by the estate. Plus probate fees. And, yes, you need a lawyer and an accountant. Funds in RRSPs can be passed on by a will but are fully taxable, unlike TFSAs. Future gains in those are taxable in the hands of the beneficiary.

Kids can sign on as joint owners of a non-registered account prior to the parents passing, and that will facilitate a quick transfer. But gains in a non-reg account attributed to the person passing (in this case that would be almost everything) are taxable at death. So, remember – joint ownership does not give a free pass on capital gains taxes. The hit remains on the terminal tax return (which must be filed within six months). And get a professional executor with a seven-figure estate. Not one of the spawn.

So, what about a gift before Mr.Reaper arrives?

Yes, Canada is free of any gift tax. Anybody receiving a gift or inheritance from any source (other than an employer) need not include this in taxable income. But with any gift of a thing – whether it’s stocks, real estate, hockey cards, gold wafer, Bitcoin or an ETF – the giver is deemed to have sold it at fair market value and will be taxed accordingly.

Those are the tax rules. Now let’s talk ethics, Jay.

Your parents are rich. Hers are struggling. Investing their fifty grand will do nothing but create stress and tension while providing no serious income. Not worth it. If your parents sell the house and suddenly have $1.5 million, then move in and gift you hundreds of thousands the least you can do is invest property and use the income – all of it – to pay your wife’s parents’ rent. Five hundred thou in a B&D portfolio should throw off two grand a month (after tax), which would make a major improvement in their lives.

Will you ever get it back? In spades. Gratitude, and the knowledge you acted well. Plus your wife will love you forever.

In the meantime, Jay, watch the tone. The greed is palpable, and ugly. Don’t obsess over the taxless and hassle-free way to get wealth you did not earn. Your folks may grant you riches. You partner’s parents gave you her. No comparison.

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May 3rd, 2021

Posted In: The Greater Fool


  • ROBERT BOYD says:

    Your best post ever… hit home… that is why you are so popular

    • Cy Dasilva says:

      I agree with Mr Boyd and the last paragraph of this blog is essential to understanding what separates the greedy from the good

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