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Gifting

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4 min read

One of the trends we are seeing is an increased interest in giving property to family during our lifetime. This may be attributed to several factors. The cost of purchasing a first home is becoming increasingly difficult without the assistance of family. Secondly, parents have benefited from the post-war economic boom of many years and recognize their children will likely not see that same exponential growth. Thirdly, those parents are now receiving considerable inheritances from their parents, and they do not need it, or they see that it will help their children get a leg up. Lastly, cultural norms are changing about discussing and sharing wealth. There is a shift away from keeping our finances completely private and not sharing inheritances until we die, toward more open disclosure and a desire to share the wealth now so that the donor can see and be part of the pleasure and aid it provides to the next generation. But human nature being what it is, we universally have opinions about how the gifted funds should be used and enjoyed, who should or should not benefit from the gift, and how a gift to one child will impact the other children. How can or should we give freely while retaining certain safeguards?

Let’s use an example to explore the various considerations. A and B have two children, C and D. C lives in an expensive city, has a good career, is married and expecting, and wishes to purchase a home. D is single, still in school, and is likely years from settling down. A and B wish to help C, but they are concerned about being fair to D, and they have concerns about the stability of C’s marriage.

Equalization Between Children

If A and B help C out with a down payment, they can update their wills to include provisions equalizing the gift so that D receives more on death. However, C will have had the benefit of the use of the funds for the years leading up to A and B’s death. If D had received the same funds and invested them, D would be better off, or at least on a more even footing with C. Further, if the amount is, say, $200,000 in 2026, and the amount is stipulated in the will to be equalized, the amount does not take into account inflation. So A and B might specify that $200,000, adjusted for the consumer price index, shall be equalized on death. Or perhaps it is $200,000, adjusted for inflation, upon which interest at a deemed rate is added. Or perhaps A and B set aside $200,000 in an investment account and specifically earmark that for D on their passing. Or lastly, if feasible, A and B give C and D the same amount now. Often, parents help one child and plan to help the others when the timing is right or the child has a need. If these ‘advances’ are not documented, the law presumes that the gifts we make during our lives do not impact our gifts in our wills. So if A and B simply give C the funds and do nothing more, the presumption is that it will have no effect on the equal distribution of A and B’s estate to C and D after A and B die. If A and B have different intentions, they must be well documented.

 

Spouses of Children

A common concern among parents is the desire to help their child and respect their child’s choices while protecting their child’s assets and/or inheritance from spouses or a relationship breakdown. Our family property legislation specifically excludes gifts and inheritances from division on marital breakdown. However, there are two important exceptions. First, where the gift is commingled with or used for family purposes, it may no longer be exempt. For example, if the gift is placed in a joint bank account or used to pay down the mortgage on the family home, the exemption could be at least partially lost. Secondly, any increase in value of the gift is divisible. So if the child places the funds in a solely owned investment, the initial contribution is exempt, but the growth over time during the relationship is divisible.
Where parents are helping with a down payment on a house to be owned by the child and the spouse, a common safeguard is to loan the money instead of gifting it and to place a mortgage on the property. If the relationship ends, the loan is still enforceable against both parties, and it can be forgiven as against the child. Consideration should be given to whether such a loan would require probate of the parent’s estate in the province where the land is held if the parent dies.
In some cases, parents will choose to be placed on title with the child and the child’s spouse. Historically, this was more popular, but with trust reporting rules, concerns about loss of the principal residence exemption, and the need to clearly document the various parties’ interests in the land, this option is waning in use.

Prenuptial or marriage agreements are strong safeguards against inclusion of gifts in family property. However, they are largely out of the parents’ control and require extensive disclosure in order to be valid and enforceable. Parties might consider a limited marriage agreement related solely to excluding the gifted property.

Documenting the Gift

To ensure clarity of intentions, if parents are choosing to gift funds outright, such gifts should be documented with a formal deed of gift and an acceptance. Also consider clarifying whether the gift is an advance on an inheritance and who is responsible for any taxation or costs related to implementing the gift.

Conclusion

With some awareness and documented planning, parents’ desire to help their children flourish by gifting money now can often be achieved while still safeguarding against spouses or claims of unfairness by other family members. Ultimately, fairness is in the eye of the beholder, but transparency and clear documentation can go a long way toward reducing potential tensions and increasing the natural lift we get when we give to our loved ones.

Lifetime gifting can be generous and meaningful, but without careful planning it can also create unintended tax, family, or relationship consequences.

Contact our Wills, Estates + Trusts Group to discuss your circumstances. Amie Heil and Ronda Johnson can help you structure lifetime gifts in a way that supports your children while protecting your intentions and minimizing future conflict.

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