It is not uncommon for parents to provide monetary gifts to their adult children. Parents may wish to help their child with a down payment on a property, or help pay out their child's existing mortgage. Parents often consider these gifts as an advance on the child's inheritance.
It is important to be clear with the intention behind any gifts made to your children. This is particularly important where your child is married or in a marriage-like relationship, as the breakdown of your child's relationship may have unintended financial consequences. If your child later separates from his or her spouse, your gift may be subject to division as family property.
This is illustrated in a recent British Columbia Court of Appeal decision, Cabezas v. Maxim, 2016 BCCA 82, where the Court found that:
- barring evidence to the contrary, the presumption is that a gift to a child is a gift to that child and his or her spouse; and
- the relevant time to assess the intention behind the gift is the date the gift is made, not the date the spouses separate.
In Cabezas, a son and his spouse purchased a property approximately a year after they began living in a marriage-like relationship. During the relationship, the couple struggled financially. The son's parents, in an effort to help out their son, contributed a significant amount of money to fully payout the mortgage on the property. The couple ultimately separated and sold the property, free of the mortgage.
In the separation proceedings, the son sought to exclude the full sale proceeds from the division of family assets. He argued that he, not his spouse, had paid the down payment on the property. He also argued that the mortgage had been paid using money that his parents had either loaned to him for that purpose or had gifted to him as an advance on his inheritance.
The trial judge found that, at the time the mortgage payments were made, the son's parents intended to provide financial assistance regardless of whether the son's spouse would benefit. In fact, the parents had provided financial assistance to all of their children in such a manner. It was only when the relationship broke down that the son's mother decided to treat the assistance as an advance on the son's inheritance.
In the absence of any contemporaneous evidence that the monies were loaned, the trial judge determined the monies were given as a gift intended to benefit both the son and his spouse. The Court of Appeal agreed, finding that:
- the property could not be fairly categorized as "excluded property" under the Family Law Act;
- the later decision by the son's mother to treat the mortgage payments as an advance on her son's inheritance did not, on the facts of this case, nullify her earlier intention to make a gift; and
- it is the intention at the time the gift is made that is determinative of its characterization.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.