Document gifts to kids or risk estate litigation

It’s sometimes hard to tell who is happier when generous parents present a large gift to their grateful child.  

But the mutual joy could be short lived if the transaction is not documented, as one B.C. family found out when tension over a $170,000 payment descended into messy litigation.  

The case revolved around the estate of a mother who had provided the cash to her daughter and her husband back in 2004 to help with the construction of their new house. 

The mother eventually lived in a separate suite at the house once it was built. But after she died, her son – acting as executor – sued his sister, claiming that the $170,000 payment was an equity investment in the property that now belonged to the mother’s estate. 

A judge sided with the sister, concluding that the money was actually a loan. Even though he found there was no evidence that the sister ever actually made any repayments to her mother, the judge concluded that too long had passed for the loan to remain valid.

Scenarios like this one arise increasingly frequently, particularly in overheated real estate markets like the Greater Toronto Area, where few young adults can expect to get on the property ladder without a little help from the Bank of Mom and Dad.

Some parents provide the cash as a loan, repayable at very low or zero interest, while others prefer to characterize the down-payment as a gift or an advance on the child’s inheritance. Whatever their individual situation, parents can reduce the chances of a future estate dispute by documenting the transaction and their intentions in writing.

Housing related gifts tend to be the largest gifts I see in my practice, but there are plenty of other ways parents help their children out with significant amounts of cash. In any case, the gifts don’t really have to be that large to raise the hackles of other beneficiaries, especially if it’s a sibling who suspects a brother or sister has received more than their fair share.

Even when parents intend to provide the same type of gift to all of their offspring, it can be difficult to smooth out any differences in value before the end of your life, since each child will have their own unique needs at varying stages of their lives. 

A major gift or loan transaction may also be a good time to update your will – an experienced lawyer can ensure your intentions are accurately expressed and reflected in the document.

Whatever your intentions regarding down-payments or other gifts, loans and advances on inheritance, it’s best to be open with all of your children about what each has received during your life, so that there are no surprises when your will does actually take effect. Even if some beneficiaries are unsatisfied, it can help to take the heat out of estate administration if they’re able to set realistic expectations ahead of time. 

Disclaimer: The content on this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Users of this website are advised to seek specific legal advice by contacting members of Laredo Law (or their own legal counsel) regarding any specific legal issues.