A survey conducted by a large Canadian bank found that 10% of Canadians are considering the purchase of a condominium for their adult children. This is up from 5% just a few years earlier and certainly reflects drastically increasing housing costs over the past decade.
Gerry and Joanne were more than happy to give their daughter a sizable down payment to help her and her new husband get into a home of their own. Unfortunately, like almost half of marriages, theirs ended in divorce. The ex-husband got half of the proceeds of the sale of the house, even though they were only married for three years.
Perhaps a better way of protecting what was really intended as part of their daughter’s inheritance would have been to treat the down payment as a personal loan instead of a gift. Gerry and Joanne might be concerned about what their daughter and her husband might think about them by having a loan signed, but it does protect their hard-earned dollars and, more importantly, their daughter’s best interest.
Just because there is a personal loan in place doesn’t mean that mom and dad have to collect payments. In fact, they can forgive the loan any time they want or make a provision in their wills to have it wiped out on their death. It doesn't even have to be registered on the property title.
This type of arrangement can be made for a common-law spouse or simple roommate arrangement, too. In fact, it might even be more important. In some provinces, there are laws in place that give an adult certain rights as if they were a spouse when living with another adult for a certain length of time. They could end up with half of something that was intended solely for the benefit of another person.
Whether you are going to gift money to your children to help them with a down payment for their new life or want to help them out of your home so you can downsize, it is very important to make sure that you speak with a financial advisor to make sure that you are not cutting your nose off to spite your face. There are many people who put themselves on title or others on title only to end up paying capital gains as a result when they did not need to in the first place.
If you are looking to help your children out, give our office a call and we can help you make the best planned decision for all involved.
For informational purposes only and not intended as specific legal advice.
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