- Well, the price of real estate is still very high for many right across Canada, making a home unattainable for many young people unless you have, perhaps, relatives or a mom and dad who are willing to lend or even give. Treva Newton is a tax and estate planner with TD Wealth in Victoria, British Columbia, and she joins us for this Ask Moneytalk. Treva, the question is does it make more sense to lend or give my kids money to buy a home?
- Well, both have their merits-- lending and giving as far as a financial point and as far as estate planning goes. So if you gift the money, it can reduce the amount of your estate. So therefore, the provinces that have higher probate fees, you're going to have less probate fees that you pay. If you lend the money, then you still get to keep control of it. Because it's gifted, it's theirs. They now have control of that asset. And if they sell their house, it's theirs. They can do what they want with it.
Also, if you gift it, it could become a marital asset, depending on how that goes. So if there's a divorce, then that money could then go with the spouse instead of with your child, which you probably intended. And then if you loan the asset, it is still part of your estate assets because it's still an asset for you. And then, how do you make sure that things are divided equally if you have more than one child?
- Lots of things to consider there. And the complications of family always come up. What about when you are the one either giving or lending the money? How do you document it?
- Yeah, so that's the really important part to do is to make sure you do document it. So if it's a gift, you want to make sure you're doing a deed of gift, which is just basically writing out that you gifted this money and who it's actually for because a lot of provinces, on their family law, if it's a gift to the child, then it's not included in divorce separation, so making sure you document the actual gift behind it.
The other reason would be if you have more than one child so that they know that it was done as a gift, not as a loan. If it's a loan, again, you really want to document that asset to make sure that-- show that is a loan so that the child knows they are supposed to be repaying this. Is there an interest rate that's attached to it to make sure the interest is actually paid behind it?
In your will, you could decide to forgive the loan so that if you've passed away that they do not have to repay it. But again, you want to make sure you're equalizing it between your children so that there is no hard feelings and your actual intentions are met.
- Let me ask you if there might be some other options. For example, maybe if you're a parent and you want to help your kids out, maybe for some reason maybe you're asset rich and don't have cash flow right now or to some other reasons where you may not be able to either lend or give. Anything else you might be able to do?
- Yeah, so a lot of people do cosigning. So that's when maybe the child can't afford or doesn't have the income in order to support the full amount of the loan that they're going to take out for their mortgage. So you would have the parent cosign the loan. This would allow that the child could have-- entitled to the mortgage. You are then responsible to make any payments if your child doesn't make those payments.
- So obviously, there's some things to be wary of on that too, but it is a way to help out.
- Treva, thanks so much.
- Thank you.