The Great Wealth Transfer is set to pass on a stunning $1 trillion from baby boomers to their heirs in the next few years, but some older Canadians are getting a head start on moving their money before they die.

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Jamie Golombek, managing director in tax and estate planning at Canadian Imperial Bank of Commerce (CIBC) Private Wealth, said these pre-transfers of wealth have become particularly common when it comes to baby boomers helping their adult children buy their first home.

“It has become almost unaffordable, completely unaffordable, depending on the market, certainly in Toronto and Vancouver, but even some of the other … major cities, where most of our clients are,” Golombek said.

“Ultimately, it’s just impossible for the average person to be able to get even the down payment together to buy a first home without significant aid from parents. So, yes, we’re seeing this literally every day.”

Parents gifting money to buy homes

A June report from CIBC said the share of first-time homebuyers who received financial help from family members has climbed to 31 per cent, up from 20 per cent in 2015. The average gift stands at about $115,000.

“The bottom line is that the parents have done a financial plan; they feel they’re in good shape and they just have excess cash that they really don’t need,” Golombek said.

He added that in many cases these parents are paying taxes at a higher rate due to their wealth, so transferring some funds over to their adult children can be a smart financial move, especially if they plan for their children to inherit these funds anyway.

And since Canada doesn’t have a gift tax, parents don’t have to report a cash gift to their children on their tax return, although withdrawals taken from a registered retirement savings plan (RRSP) or registered retirement income fund (RRIF) to fund a gift are subject to tax.

Amanda McKenna, associate portfolio manager at Verecan Capital Management Inc., also believes older Canadians want to see the effects of their gift-giving while they’re still alive.

“People are living longer than they have in the past,” she said. Older Canadians “are realizing that by the time they pass away, their kids are a little bit older, so it may be better to help them out now, while they’re starting out.”

‘When hard work just really paid off’

Golombek said he’s seen situations where parents are living into their 90s and their kids are in their 70s, but haven’t received their inheritance yet, even though they could have made use of the money much earlier in their lives.

But Paul Kershaw, a policy professor at the University of British Columbia and founder of Generation Squeeze, a non-profit that advocates for generational fairness, said there’s another factor that’s encouraging these pre-transfers of wealth.

“Boomers came of age at a time when hard work just really paid off,” he said, noting that the older generation didn’t need as much post-secondary education to secure a job, education wasn’t as costly and wages were more likely to cover the costs of housing than they do today.

As a result, many boomers who have benefited from soaring property values and hefty savings are now passing on some of their wealth to their children because they can afford to do so and still manage a comfortable retirement.

“Many (parents) are just trying to hack this dysfunctional intergenerational system in Canada that’s harming young folks and they’re saying, ‘I will use some of my wealth to help the people around my family table,'” Kershaw said.

But one problem, he pointed out, is that there is still a small proportion of older people who don’t own homes or have much wealth to pass down, which means their children won’t be benefiting from this wealth transfer and might not be able to afford property ownership.

A recent Statistics Canada report supports this theory, revealing people born in the 1990s whose parents were homeowners were twice as likely to own a home in 2021 than those whose parents did not own homes.

This inequity could create two major issues.

One is that generation Z and millennials who aren’t homeowners could age into retirement with higher levels of economic insecurity.

The other is that younger people who do manage to become homeowners end up wanting their assets to increase in value, as well, perpetuating the cycle of housing unaffordability.

“I think we need millennials and gen Z to say this trend stops with us to restore affordability for all,” Kershaw said. “We need home prices to stall so earnings can catch up.”

Generational inequality

A significant proportion of federal spending is going to older Canadians, Kershaw further noted.

The cost of the Old Age Security (OAS) program is set to climb to nearly $100 billion by 2028-29 — representing 18 per cent of federal program spending that year — and currently surpasses spending for other benefits like Employment Insurance (EI) ($26.5 billion) and the Canada Child Benefit ($27.3 billion), which are more likely to benefit young people.

Kershaw said affluent older Canadians need to consider whether more federal spending can be allocated toward investments in housing or even child care and post-secondary schooling.

Alternatively, he suggested a progressive property tax system in which owners of higher-valued homes pay higher rates.

Politicians are unlikely to make these policy changes when the majority of voters are homeowners and want to protect their nest eggs, he explained. But in the meantime, younger Canadians are being left in the dust.

“The whole narrative around this great wealth transfer implies that younger folks aren’t making it,” Kershaw said.

“It’s the system’s problem, and the system’s so powerful it can give rise to narratives about a great wealth transfer from older to younger that make the older people look like they’re the heroes and not actually implicated in the problem.”

• Email: slouis@postmedia.com

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