How To Plan For The Wealth Transfer: Gifting Your Way To A Legacy

How To Plan For The Wealth Transfer: Gifting Your Way To A Legacy

The Estateably Team
April 4, 2024

Gifts and donations can help you achieve both of these aims. Contrary to popular belief, they’re not just for the ultra-rich; they play an important part in financial planning for modern professionals, too. In this guide, we’ll look at the role of gifts and donations in estate management, the types of assets they might include, and how to avoid some of the common pitfalls.

The Tax-Smart Way: Annual Gift Tax Exclusion

Gifting your assets to family and friends is the simplest way to start transferring your wealth, and it’s a smart way to go about it. Not only do you have the joy of helping family and friends during your lifetime, but by gradually reducing the overall value of the estate, you can also cut the amount of tax your beneficiaries will have to pay in the future. Everybody wins.

However, it’s important to be aware of the annual gift tax exclusion. This is the amount you can give to another person in any one year without paying a gift tax, and the tax is paid by the donor, not the person receiving the gift. In the US, for example, you can give each individual up to $17,000 in 2023 before having to pay tax on it.

There is no gift tax in Canada, but if you’re giving away capital property such as shares or real estate, you might be liable for capital gains tax.

The Philanthropic Angle: Donations

Charitable giving is another important pillar of wealth transfer, and it can be incredibly rewarding to see the impact of donations during your lifetime. It’s also a wonderful way to secure the future of the causes you care about and create a legacy of generosity.

Philanthropic donations bring another benefit, too, in the form of tax deductions. In Canada, you can claim tax credits based on the eligible amount of any gifts you make to registered charities or qualified donees, up to a limit of 75% of your net income for the year. These donees might include registered journalism organizations or registered Canadian amateur athletic associations, among others.

Types of Gifts and Donations

If you’re considering making a personal gift or philanthropic donation, you don’t have to be restricted to cash or checks. Assets can also include stocks and shares, real estate, family heirlooms, or other valuables.

One of the simplest and most tax-efficient ways to give to charity is a donor-advised fund (DAF). This is a third-party vehicle that manages your charity donations. You pay into the DAF and receive the tax deduction immediately, and you can then advise the fund on how you’d like your donation to be used.

Key Considerations for Making Gifts and Donations

It’s essential to keep track of your gifts and donations, both for your own purposes and for your beneficiaries. In the short term, you’ll need to have the right paperwork to hand in order to claim tax relief on your charitable donations at the end of the year. Looking further ahead, it’s crucial to make sure that any gifts you make during your lifetime are carefully documented in order to avoid confusion and potential disputes when your estate is being settled.

The tax implications can be difficult to navigate, particularly when capital assets are involved and capital gains tax comes into play. So, it’s a good idea to consult with financial advisors or estate planners. They’ll help you stay compliant, and they’ll understand how to structure your gifts and charitable giving to maximize the benefit for everyone involved.

Common Mistakes to Avoid

While gifts and donations play an important role in an effective financial planning strategy, there are a few challenges to navigate:

  • In countries that have them, annual gift tax exclusion limits can vary from year to year. Check the limits as part of your planning to avoid unexpected tax liabilities.
  • Incomplete paperwork can lead to a loss of tax credits for you, or become a tax obligation for your beneficiaries later on. Document everything thoroughly.
  • Sometimes, sudden windfalls can bring about unintended consequences. Before making a significant financial gift to a loved one, make sure that the amount doesn’t impact their eligibility for financial aid or any government benefits they may be receiving.


In the realm of estate planning, the benefits of gifts and donations are twofold. Not only do they help to reduce your tax liabilities in the immediate term, but they also form the foundation of your legacy in the future.

As with every aspect of financial and estate planning, it’s essential to act in compliance and maintain meticulous records. At Estateably, we help trust and estates professionals work more efficiently by automating the manual tasks associated with estate administration, from accounting to beneficiary reporting. Contact our team or book a demo to find out how.

More Articles