# Gifting or loan to adult children?



## janus10 (Nov 7, 2013)

We aren't in the position yet, but we hope to see the day where we can help our children financially without jeopardizing our own early retirement.

Let's assume within the next 5 years we find ourselves blessed with an extra $450k in our non registered account that is completely excess to our needs.

We have three children all of whom live in the expensive GTA and, because of their incomes even taking into account their partners, will not likely be able to have a home and a family - they'd need to choose.

So, if we are in a position where we can help them now as opposed to them waiting to receive an inheritance perhaps when they are in their 50's or 60's I want to be smart about it.

If they were to receive let's say, $150k each from us, what rights would their partners have to the money should they split up (two of the three kids have common law partners)? If they would be required to share that, would it make more sense to loan them the amount at extremely favourable terms to them?


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## 319905 (Mar 7, 2016)

Deleted ...


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## Mukhang pera (Feb 26, 2016)

janus10 said:


> If they were to receive let's say, $150k each from us, what rights would their partners have to the money should they split up (two of the three kids have common law partners)? If they would be required to share that, would it make more sense to loan them the amount at extremely favourable terms to them?


These matters fall to be determined, for the most part, by provincial law. In BC, that means the Family Law Act. 

Here is a recent case illustrating the application in circumstances relevant to janus' query:

http://www.courts.gov.bc.ca/jdb-txt/SC/15/16/2015BCSC1605.htm

To save some the tedious chore of actually reading the case, the nuts and bolts of it can be found in these few passages:


[12] Section 84 of the FLA defines family property to include all property owned by at least one spouse. Section 85 sets out a number of exclusions from the general rule including, in s. 85(1)(b.1), gifts to a spouse from a third party.


[15] When spouses divorce, parents of one frequently say that any money they gave during the marriage was either a loan or a gift to only their daughter or son, with no intention to benefit the other spouse. Because those recollections are naturally coloured by the subsequent divorce, the court must look to the circumstances and intentions at the time the money was advanced.

[16] All of the evidence supports the inference that Mr. Guichon knew when he advanced the money that it was being used by both parties to buy a family home. In Cabezas v. Maxim, 2014 BCSC 767 at para. 68 , Hinkson C.J. said:

However, where a parent chooses to provide funds to a child for the purchase or maintenance of the family residence (to use the language of the [FLA]), those funds are presumed to be a gift to both the child and his or her spouse. Absent evidence rebutting that presumption, the funds and any proceeds derived from them are family property under s. 84 of the [FLA].



janus10 said:


> If they would be required to share that, would it make more sense to loan them the amount at extremely favourable terms to them?


Might make more sense to make it a loan, provided said loan is actually documented and payments are, in fact, made. Courts have found so-called loans to be in fact gifts where they were made long ago and there is no record that any payments were made or requested.


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## OhGreatGuru (May 24, 2009)

Ah this is a messy one, with no perfect answer. In principle I believe it makes more sense to make gifts to adult children early, when it is of most benefit to them, rather than that of a later inheritance. But the conundrum of the rights of spouses can complicate matters. There are several things you need to think about:
The common law has, for many years, been moving in the direction of extending the same property rights to common law spouses as to married spouses;
With the increasing prevalence of common-law relationships and the increasing frequency of divorce, one has no assurance that a common-law relationship will be any more or less stable than a marriage;
If you treat them differently, are you simply going to create resentment in the families by treating them differently?

In a perfect world, the common-law partners would have co-habitation agreements that address major gifts or inheritances received during the relationship. But this is rarely the case. You could suggest that they should have, but when your motivation becomes known, will you create resentment?

A promise of annual gifts toward paying down their mortgages instead of lump sum would address some of your concerns. But it is not likely to be of interest to the mortgage lender, or help your children qualify for a better mortgage.

PS: In view of Mukhang pera's observations on BC law, I realize I should have said "Family Law", not "Common Law". I had heard that BC was in the forefront of some of these changes.


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## Mukhang pera (Feb 26, 2016)

OhGreatGuru said:


> The common law has, for many years, been moving in the direction of extending the same property rights to common law spouses as to married spouses;



Here in BC, with the proclamation of the Family Law Act, statute law has now codified what was perhaps seen in some jurisdictions as the direction of the common law. So, for BC, being married and living common law has pretty much become a distinction sans a difference. 

The words of the BC Court of Appeal make that plain in the recent case of Matteucci v. Greenberg, 2016 BCCA 116.

http://www.courts.gov.bc.ca/jdb-txt/ca/16/01/2016BCCA0116.htm

At para. 42 the court observed:

[42] The parties acknowledge that the enactment of the FLA was intended to be remedial, correcting, inter alia, the mischief of treating common-law couples differently than married couples. The FRA was repealed upon proclamation. The FLA followed upon a “white paper” the “White Paper on Family Relations Act Reform: Proposals for a New Family Law Act” published in July 2010 which identified the mischief I have mentioned. There were some 15 months between the time the FLA received Royal Assent and the time the Act came into force by B.C. Reg. 131/2012. The Regulation was approved and ordered on June 18, 2012 and provided that the FLA would be brought into force on March 18, 2013. It could not be said that these changes to the legal regime were not clearly at play well before the legislation came into force.


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## janus10 (Nov 7, 2013)

Great responses... Thank you.

My intention was that if making a loan is the method most likely to protect our children , that it would be properly drawn up with payments to be made and taxed in our hands as income.

If our children end up staying with their partners for a long time then our concern vanishes. But, if they break up in two years, we'd be upset about the breakup and that would be compounded by their partner walking away with half of our gift. 

I believed the loan is the appropriate tactic for us but after realizing that it will still show up as a debt obligation, I'm not sure how it makes it easier for them to get a mortgage.

And we are in Ontario, by the way.


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## agent99 (Sep 11, 2013)

We have a somewhat similar situation. Question is, given the present high cost of living, will they ever have enough for their retirement? Give them money now, and it could just gets used for a higher current standard of living and then still nothing left for retirement. My feeling is that it is better to let them fend for themselves now and adjust their standard of living to fit their means. That way, we retain our nest egg and if we need it due to ill health or other unforeseen costs of aging, then we will have it. Toward the end, if there is anything left, we can help them out in their retirement.


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## CalgaryPotato (Mar 7, 2015)

I totally understand your intentions and might be thinking along the same line in 15 years, but maybe I've been reading the Greater Fool too much, but this seems like exhibit A on why no one can afford to buy in Toronto or Vancouver anymore.

Anyway, here are some outside the box thoughts. Do they have student loans? You could offer to pay off their students loans? That should be very specific to your children, not your spouses children.
Do they have kids of their own? Funding their RESP's again might be a way to keep the money in your family and go around the spouse?

Anyway, the theory vs. the reality of trying to keep separate money is really hard. If they are pooling their money to pay for day to day expenses then it is going to be a very limited amount of time, you'll be able to tell what money belonged to whom.


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## OnlyMyOpinion (Sep 1, 2013)

The way I look at, unless you have absolutely no use for your kid's partner, if you gift money to your child and it becomes part of their shared assets (e.g. they use it to buy a house), and then they part ways - you have helped out 2 people instead of one.
Unless you reconcile it in some manner like this, you might be cruisin' for a bruisin'.
On the other hand, if you already have concerns about their partner, you probably should be keeping your money and helping out in some of the ways suggested by CP and others.


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## Emjay85 (Nov 9, 2014)

agent99 said:


> We have a somewhat similar situation. Question is, given the present high cost of living, will they ever have enough for their retirement? Give them money now, and it could just gets used for a higher current standard of living and then still nothing left for retirement. My feeling is that it is better to let them fend for themselves now and adjust their standard of living to fit their means. That way, we retain our nest egg and if we need it due to ill health or other unforeseen costs of aging, then we will have it. Toward the end, if there is anything left, we can help them out in their retirement.


I can't help but completely agree with this. Let them fend for themselves, stand on their own two feet, do what it takes to provide for themselves. It will make them value money and work much more than they would with a hand out.

On the gift front, maybe spring for a few large gifts on certain milestones, such as 75k when they get married. If they are taking that step they both must be serious and in it for the long haul. Maybe after that small injections to their mortgage maybe or RRSP/RESP would be helpful.


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## marina628 (Dec 14, 2010)

We looked at these option for our oldest and even making $120,000 a year with no debt you can only qualify for $450,000 mortgage according to TD Bank.Our oldest does not make anything close to that but maybe you should have your kids do an exercise and see what they can afford in reality.A year or so ago you could get that type of mortgage on about 80-90k.


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