While many Canadians follow the traditional method of leaving an inheritance by naming beneficiaries in their will, others choose to give their children an early inheritance or an advance on their inheritance.

Say that a 70-year-old retiree has a 40-year-old daughter who lost her job and is struggling to pay the mortgage, make car payments and save for her child’s education. If the retired parent redeems mutual fund investments to give their daughter an advance on her inheritance, she could stay on track financially. But if the parent lives a long life and only leaves the inheritance through their will, the daughter may be retired when she receives the funds.

You and your child benefit

A key reason to give an early inheritance is to help out a child when the funds have the most impact. Each child may have their own financial need, such as investing in mutual funds to save for their first home, returning to school to pursue a new career, getting through a rough patch or launching a business.

The financial boost can make a significant difference in the child’s life. For example, helping with a down payment can mean a child buying a home several years earlier than they could have without the advance on their inheritance.

You can benefit too. You have the satisfaction of making a decision that helps your child now, and you’re able to witness the difference you’re making in a loved one’s life.

Important considerations

If you wish to give a child a large sum, you want to ensure that reducing your mutual fund savings won’t affect your own financial situation and retirement plans. We can help you determine whether you’re able to give while living and the amount you can give without jeopardizing your financial future.

A parent may be financially able to give a significant early inheritance to a child in their 20s to make life easier. But what if the gift causes the child to lose their motivation and work ethic, and the child fails to learn about budgeting, saving and financial responsibility?

A benefit of giving while living is witnessing the positive impact you make, but that benefit has a flip side. If you witness the child spending the money unwisely, you may regret your decision.

If you have two or more children, and you’re helping one child meet a financial need, you’ll likely want to ensure you’re treating all children fairly. For example, you can give equal gifts to all children or account for one child’s gift in your will.

Another concern may be entitlement. A child who receives an advance on their inheritance may later ask for more, which could strain your relationship if they expect the funds and you prefer not to grant their request.

Making your decision

Deciding whether to give while living involves personal and financial factors. You need to consider if you’re open to giving funds now or prefer to leave the full inheritance through your will. With our input, you can determine if you’re financially able to give an early inheritance without putting your own mutual fund investment goals at risk. You may also consult with a lawyer for estate planning matters.

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Determining the amount and timing

If you decide to give while living, you can arrive at an amount and the timing that suits your personal situation, conforms to your child’s responsibility level and meets your child’s financial needs.

Someone who trusts their child and wants to give an early inheritance may feel comfortable gifting a large lump sum when the funds can help the most.

A parent who is apprehensive about giving a large sum at once may wish to stagger the gift in smaller amounts over time, or only provide the funds at times the child has a specific financial need.

You may be in a position where you are unable to give a large early inheritance or don’t believe it’s a good idea, but you still want to help out with smaller gifts. In this case, you could provide funds that your child can contribute to mutual funds in their Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA).