January 1, 2019

The smart way to invest for your kids’ inheritance

Alex, a 65-year-old widow, asks what is the best way to give an inheritance to her kids. Her plan is to transfer money annually from a RRIF into an investment brokerage account shared with her kids. By not waiting to transfer her wealth, she hopes to avoid having her kids pay the 30-40% tax on her RRSP/RRIF upon her death. Overall, her plan is a reasonable strategy, but it’s important to consider all the implications. For instance, has she thoroughly considered how much money she may need for herself in the years to come, in addition to the implications for her children. Below are some additional items to consider.

Key Takeaways:

  • Determine how much to withdraw from a RRIF by factoring in the amount of your pension and any other income you have to ensure the government doesn’t claw back OAS.
  • Ensure your financial needs planning includes high-cost items like healthcare. You don’t give away so much that you don’t have enough for healthcare at 90.
  • Giving legal ownership of your money to your kids means exposing the money to the kids’ issues: lawsuits, bankruptcies, stealing, divorces and influential spouses, so it’s best to reflect on any potential risks.

“I plan to convert a portion of my RRSP to a RRIF and withdraw $10,000 annually starting 2019…Is this a good strategy?”

Read more: http://www.moneysense.ca/columns/ask-moneysense/good-tax-strategy-to-transfer-money-to-my-kids-investment-accounts/

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