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The ABCs of investment accounts: TFSAs for generational wealth transfer

Use your children’s TFSA contribution room for extra tax savings
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Scotia Wealth Management Senior Wealth Advisor, Dave Lee, offers Total Wealth Planning in White Rock. To book an appointment, call 604.535.4743 or email dave.lee@scotiawealth.com.

If you’ve worked hard, lived within your means and sought wise counsel, you may have more than enough to ensure your own comfortable retirement.

“Many of my clients are in this position,” says Senior Wealth Advisor Dave Lee from Scotia Wealth Management in White Rock.

“They’re retired, have assets like a home that’s fully paid off, have maximized their TFSAs, and have a plan for winding down their registered accounts. We’ve gone through the planning process and we know they likely have more money than they’ll need to spend in their lifetime, and their intention is to pass those savings on to younger generations in the family.”

“A commonly over-looked tax strategy is advancing your adult child’s inheritance to maximize their TFSA. If it’s going to them anyway, why pay tax on investment income in your own name year after year while their TFSA sits empty?” Dave asks.

READ MORE: Use your TFSA for long-term investments

What’s the best strategy for your family’s assets?

The potential benefits of TFSAs have snuck up on many people, since the account launched in 2009 with a relatively small limit of $5,000. Now, any adult who’s been a resident of Canada and over the age of 18 since 2009 has contribution room totalling $88,000. The tax planning opportunity has become too big to ignore.

Consider a married couple with two adult children. First they can make lump sum contributions to get caught up from previous years. Then $6,500 per person, times four family members, means $26,000 can be shifted annually from taxable investment accounts to those that grow tax free.

“For families with a strong foundation of trust and similar fiscal values, the benefits are significant.”

Potential issues may occur in the event of marital breakdown, or if children choose not to use the savings as intended. But Dave has advice for that too.

“Parents can ask a Certified Financial Planner to assist with long range projections to help them share their vision for decades of tax-free compounding. Once you gift the money you can’t force your children to use it in a specific way, but many parents have had success with a simple rule: gifts equal to the maximum annual TFSA contribution will continue for as many years as the adult children keep those gifts invested in a TFSA.”

Enjoying these articles? Visit www.dave-lee.ca/publications to read more. Have a question? Contact Dave at 604.535.4743 or dave.lee@scotiawealth.com.

ScotiaMcLeod, a division of Scotia Capital Inc.

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for those older parents, how amazing for them if they’d had money compounding since they were young