Giving with a Warm Hand
I expect to be leaving an inheritance to my sons, and I’d rather give them some of it while I’m alive instead of waiting until after both my wife and I have passed away. As the expression goes, I’d like to give some of the money with a warm hand instead of a cold one.
I have no intention of sacrificing my own retirement happiness by giving away too much, but the roaring bull market since I retired in mid-2017 has made some giving possible. Back then I thought stock prices were somewhat elevated, and I included a market decline in my investment projections to protect against adverse sequence-of-returns risk.
Happily for me, a large market decline never happened. In fact, the markets kept roaring for the most part. As it turned out, I could have retired a few years earlier. A large market decline in the near future is still one of several possibilities, but the gap between our spending and the money available is now large enough that we are quite safe.
Our lifestyle has ramped up a little over time, but not nearly as much as the stock market has risen. We just aren’t interested in expensive toys. Owning a second house or a third car just seems like extra work. Our idea of fun travel is to go somewhere with nice hiking trails.
So, we have the capacity to help our sons with money, but there is another consideration: what is best for them? I’m no expert in the negative effects of giving large sums of money to young people, but I’m thinking it makes sense to ease into giving.
This is where the new First Home Savings Account (FHSA) is convenient for us. Our plan is to have our sons open FHSAs, and we’ll contribute the maximum over the next 5 years. This will give them an extra tax refund each year, and if they choose to buy a house at some point, they can use the FHSA assets tax-free as part of their down payment. If they don’t buy a house, they can just shift the FHSA contents into their RRSPs without using up any RRSP room.
This FHSA plan is just the beginning of a journey that I expect to enjoy a lot more than hoarding money I don’t need to be handed over after my death. My sons will benefit more from getting some money now instead of waiting until they’re on the verge of retiring themselves.
Hi Michael,
ReplyDeleteGreat idea. Thinking about same for our daughter. Do you know if its possible to put the entire 40k into the HFSA in one swoop now?
Thanks for the post
As I understand the rules, you can only put in $8k per year. If you miss one or more years, you can put in a max of $16k in a year to catch up.
Deletemy thoughts exactly. I imagine this will be popular for intergenerational financial planning.
ReplyDeleteThe idea of helping young people with buying a home is certainly popular with boomers.
DeleteI like your plan, Michael. We have one child that hasn’t bought a house yet, so I’ll take a closer look at the FHSA. The other “giving with a warm hand” that we’re doing already is an RESP for each of our grandchildren, to the tune of $25,000 per child x 5.
ReplyDeleteHi Bob, Yes, RESPs are another good way to pass money to future generations.
DeleteThis is an excellent idea and one that a lot of my clients are also excited about. Also, I just learned that your child can carry forward the deduction to a future year (like with an RRSP). Now, if we can only get these accounts launched. I've heard April but now that may be pushed back to the summer...
ReplyDeleteHi Robb, I wondered how enthusiastic banks would be for the FHSA given that they have max $40k contribution room and are likely to be drained fairly quickly.
DeleteAgreed. They sound like a nightmare to administer. Especially for people who will make one contribution and then immediately withdraw it to buy a house (just because they can).
DeleteI am of two minds on this matter. I understand your point of view but I’m also thinking that if I tell my kids to not save anything for retirement and spend all their money on themselves and any potential children, my wife and I will provide for their retirement with our estate. We had our 2 children when we were in our mid 30s so there’s a good chance we’ll both be dearly departed before the the oldest is 55. To me, this means they will spend based on their income and I won’t have any issues with divorce. What do you think?
ReplyDeleteHi Larry, I've always taught my sons they need to save some money and avoid debt, so it would be inconsistent for me to tell them to go ahead and spend all their money. I also don't think it's wise to count on an inheritance that might not happen. Maybe you're very confident you'll be leaving some money, but in general, children can't be sure of the amount their parents will leave. So, I'd want my kids to hold back on extra spending until I've actually handed over some money. Another consideration is that I wanted my kids to learn how to handle money well so they don't just start blowing anything I leave them. I'm not saying I'm making all the best choices, but that's my thinking. Your mileage may vary.
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