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Passing It On: Canadian Families Share the Wealth

Written by Posted On Tuesday, 21 August 2001 00:00

Few Canadians want to wait until they inherit the family home to own their own place. Since parents are living longer healthier lives, children could be in their 60's or older by the time they receive their real estate legacy. Parents, realizing their children need help buying a home while in their twenties and thirties, are finding the best real estate legacy may be one delivered while they're alive.

A survey by Century 21 Canada reveals that baby boomer parents are increasingly stepping in with financial support and guidance to help their children buy their first home.

Baby boomers encompass the 9.8 million Canadians born between 1947 and 1966, which makes them between 54 and 35 this year. As an aside, this age spread means that a boomer parent may be helping a boomer child with their first home purchase.

Researchers concluded that because many forty- and fifty-something baby boomers have become fairly well off over the past few years, they are now in a position to provide cash gifts or financial guarantees for their children's deposit or down payment and, therefore, to remove one major obstacle to home buying. With interest rates low and rents often running high, many young Canadians find monthly mortgage payments an attractive alternative to rent, but don't have 25 percent saved for a down payment.

Parents may gift cash to their children, make them an interest-free loan, co-sign a mortgage with them or become a private mortgage lender (mortgagee) for a child's second mortgage.

If parents decide to hold a mortgage, they may find doing so within a self-directed Registered Retirement Savings Plan (RRSP) has advantages for both parties: the children know that mortgage interest stays in the family instead of lining bank coffers and the parents help their children while preserving the integrity of their RRSPs and not having to pay income tax on the liberated dollars. Children with disabilities may buy or build the home they need with a special contribution of $20,000 from each parent, using the Home Buyers Plan and RRSP funds.

(See PJ's articles Are Canadians Overlooking Compound Returns? and HBP Funds Available To Buy or Build Accessible Homes for details.)

Parents can also help subsidize education costs for children and grandchildren while enabling them to buy a property that can double as accommodation and a revenue source during university. Renting out rooms to cover costs will teach the child or grandchild about property management, business and finance. In some cases, this "business experience" may help get that first good job.

In the past, a Canadian's life and worth were measured by the size of the estate and how much the children inherited. Now, we are learning to place more value on the quality of one's life and what we share with others during it. Parents who need to access the capital tied up in the family home to maintain their independence and quality of life can still leave a legacy þ a legacy of knowledge, experience and wisdom shared during their lifetime:

  • When you investigate reverse mortgages and other home equity conversion options, help your children understand why it is useful for them to buy with these money-management tools in mind;

  • Condominiums, cooperatives and other ownership options that are popular with retirees also attract first-time buyers. Sharing what you have learned about asserting your rights, participating on boards and analysing facility management will help your offspring get off to a good start as property owners;

  • Parents who use their assets to remain independent, healthy and fulfilled, free their children from the financial and emotional burden of supporting their parents in their decline.

Parents who hang on to the family home when it no longer suits their needs because they feel an obligation to pass on the home to their children, may not be facing up to the fact that the children would prefer to live elsewhere. Talk to your children and heirs and find out how they really feel about your future and theirs.

For more articles by P.J. Wade, please press here .

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PJ Wade

Futurist and Achievement Strategist PJ WADE is “The Catalyst”—intent on Challenging The Best to Become Even Better. A dynamic speaker and author of 8 books and more than 1800 published articles, PJ concentrates on the knowledge, insight, communication prowess, and special decision-making skills essential for professionals and their clients who are determined to thrive in the 21st-Century vortex of change.

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