As we head into the busy season of house buying, weddings, and new beginnings, many parents and grandparents may be considering giving large financial gifts to young couples in love. These generous gifts are often a much needed financial start for couples who may be just starting their careers & lives together. However, some “givers” aren’t fully aware of the resulting outcome of their gifts, should the couple eventually split up.

This week alone, I’ve encountered three unrelated situations where proper pre-planning could have protected a large sum of money from becoming part of a divisible asset pool.

One situation was parents who gave $25,000 to their son as a wedding gift. The happy bride & groom used the money as part of the down payment on their first home. Two years later, the not-so-happy bride & groom are divorcing, and the proceeds from the sale of the home (including the $25,000 gift) are being split equally. Now this is fine if the gift was really intended to be shared by the couple, but in this case the parents are very disappointed that their original gift didn’t go back to their son.

Another situation involves a couple who are not yet married, and buying their first home. The grandmother had set aside and account for her granddaughter, which is now worth $32,000, and is planning to give it to her, to help with the purchase of the home. The boyfriend has $8,000 which he is contributing for the down payment. If no pre-planning documents are prepared, and this couple splits up & sells the house, the proceeds of the house will be split equally, even though the initial share was very lopsided. This is not at all what the grandmother wants.

Gifting can be a very rewarding and very much appreciated event. Many parents and grandparents prefer to see the children benefit from gifts while they are alive, rather than through an inheritance. However, it can also be very complicated. Here are some of the basics that are involved with gifting.

Firstly, gifting to minor children (under age 18) involves many tax considerations and control issues. I won’t get into that here, but please make sure you know the rules before you do it.

Gifting to adults (over age 18) is a little different. Fortunately, there are no tax implications on the gift per se, and any future taxes on the money, like taxes on interest, dividends or capital gains earned, will be taxable to the recipient. Just be aware that if you sell an investment, or even just transfer the investment as the gift, there may be tax implications to you if there is a gain on the investment.

As far as control is concerned, as soon as you gift money to an adult, you no longer have control of it. If your intention is that it be a loan, donation or otherwise, that should be documented clearly and legally.

Getting back to gifting to young couples, whether they are married or not, it’s important to think carefully about future consequences should they ever split up, and plan your gift accordingly.  When it comes to marriage, assets such as the principle residence and RRSP’s are subject to a division between spouses in accordance with the “family patrimony law”, which can become very tricky if a gift is involved. If a divorce occurs, the value of the assets under the family patrimony will be split between the spouses. However, with the proper guidance, you could consider other options such as signing a notarial deed of donation for a sum of money, which would protect that amount from being divisible. Another option would be granting a loan (requiring proper legal documents) which would protect the amount you have loaned.

In the case of the non-married couple, they could draw up such legal documents as a “co-owner” or a “common law” agreement for example, to protect their individual interests. Every case has its specific issues to consider, so there is no one-size-fits-all solution, but there are these and other options that can help make sure your wishes are well protected.

So, all that to say that generously helping a child or grandchild with a financial gift is wonderful, but be careful how it is done, and seek guidance, especially if it’s a large amount. Make sure you understand and accept the consequences of your “gift”.  A notary or lawyer, along with a financial planner can help you plan the best way to actually enjoy your generosity.

Lynn MacNeil, F.PL. is a licensed Financial Planner with Investors Group Financial Services Inc. in Montreal, with 20 years experience working with retirees & pre-retirees. This column is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide legal advice. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at (514) 693-3384 or [email protected]

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