Ewing says that if funds are absolutely required for a matrimonial home, one method is to give cash or investments of some kind, through a deed of gift, and secure credit using the gifted assets as collateral.
For example, once an adult child receives the funds, they can then invest in a portfolio of stocks or other assets. Then, they can secure a loan using the portfolio as collateral to purchase the home and, in this way, the assets in the portfolio remain protected. In Ontario, the value of gifts received by an individual are generally excluded from assets split during divorce. In this way, the funds transferred as a gift remain secure, the parent succeeds in their wishes by using a deed of gift and helps their child with a home purchase.
Ewing says to consult with legal and financial professionals when considering a deed of gift.
It is a fact of a life that business owners may be sued by unhappy clients and creditors. If a business is not incorporated, the business owner — often a lawyer or other professional — may be held personally liable for claims against the business. A business owner may, therefore, consider transferring their personal assets like their home and investments through a deed of gift to their spouse who is not a part of that business. That way, if the business owner is ever sued, the transferred assets may be protected. This structure can be a helpful measure to avoid theoretical risks, but note that it is illegal to make the transfer if the intention is to hide assets from an actual or likely creditor. Accordingly, individuals should take legal advice before making these types of gifts.
In addition, this type of gifting between spouses may trigger consequences, so consult a tax specialist before making any such gift.
“As part of planning, if I’m a lawyer or another professional starting my own business, I may want to ensure that family assets are held in the spouse’s name if I’m vulnerable to that kind of legal proceeding,” Ewing says. However, holding everything in a spouse’s name may complicate other aspects of wealth management so it’s best to meet with a financial professional to see what particular course of action is right for you.
Documenting Gifts to Make Everyone Happy
What happens if a parent pays for the post-grad tuition of one child, helps another child with a down payment of a house and gives money to a third to start their own business? How does a parent ensure they are treated equally or fairly? And when the parent passes away, and the remaining assets of the parent are divided up, how do the previous financial contributions factor into the division of the estate? Were they unconditional gifts? Early inheritances intended to come out of their future “share”? Or were they informal loans that should be paid back when the kids have the money? If they were loans, should the loans be paid back to the estate?
Documenting gifts of cash or property through a deed of gift can help simplify these matters. If the transfer was meant as a gift and there was no expectation that the child would pay the money back, this method can work hand in hand with a will to ensure that all children are treated in accordance with the parent’s wishes. If a child did not actually receive a gift from their parents and it was understood that the transferred money would eventually be paid back, documentation also helps the executor of the estate calculate what is owed to the estate.
“For the distribution of the estate, there is what’s called the ‘hotchpot clause’ which basically says, ‘divide everything between my children, taking into account any gifts I have made during my lifetime,’ and having a deed of gift on record helps keep track of that and helps ensure children are treated as intended (whether that’s equally or otherwise),” Ewing says.
With a Joint Account
Often an elderly parent and an adult child will have a joint bank account to look after the financial affairs of their parent by paying bills and perhaps even contributing money. Unfortunately, when a parent dies, the child may not be automatically entitled to use the funds. The assets in the account will usually form part of the estate of the deceased parent unless the child can demonstrate — and a witness may help — that the assets were meant for them.
A deed of gift can help smooth this problem. It can be evidence of the parent’s intention that their adult child is meant to have the funds after the parent passes away. A deed of gift can help avoid any questions about whether the funds should be turned over to the estate.
A Team Approach
Ewing says, in all matters concerning transferring large amounts of money, managing taxes, drawing up wills and making gifts, people should always work with a financial advisor, lawyer and/or accountant. She says that using a deed of gift can have implications for someone’s finances, future estate, taxes and even personal relationships. Getting sound advice is always advisable before proceeding forward.
— Don Sutton, MoneyTalk Life