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Gifts Made During a Parent’s Lifetime – Why Proper Documentation is Essential for Legal Clarity and Family Harmony
In Ontario, inter vivos gifts—gifts made by a parent during their lifetime—are often made with love and good intentions. However, without proper legal documentation, these lifetime gifts can lead to serious estate disputes, misunderstandings, and costly litigation after a parent’s death. In this post, we explore why documenting inter vivos gifts is essential for legal clarity and family harmony.
Why Gifts from Parents Should Be Documented
In Ontario, inter vivos gifts—gifts made during a person’s lifetime—are a common way for parents to support or transfer property to their adult children.
There are several benefits to making these gifts during a parent’s lifetime including parents being able to provide support for their children and seeing the impact of their support, as well as providing parents with estate tax planning opportunities such as reducing probate fees payable on assets on death.
However, while these gifts often come from a place of love and good intentions, if they are not properly documented, they can lead to costly and time-consuming legal disputes among siblings after the parent’s death.
Additionally, in today’s complex family structures, such as blended families, stepchildren, or estranged relationships, documenting inter vivos gifts becomes even more crucial. Rising property values and financial disparities among siblings can increase the likelihood of unintended consequences and disputes, making it essential to ensure everything is clearly documented.
Common Scenarios That Lead to Disputes Over Inter Vivos Gifts
Some common situations where disputes can arise include:
Cash Transfers
A parent gives a substantial amount of money to one child but not to the others. Without proper documentation, siblings may argue that the money was intended as a loan or advance on inheritance.
Joint Bank Accounts
Parents often add an adult child as a joint account holder (with a right of survivorship), on bank accounts for convenience such as, for example, paying bills. After a parent’s death, questions may arise about whether the funds remaining in a joint account were intended as a gift to the surviving child-account holder or if the form part of the parent’s estate, to be distributed according to their will. These two possibilities may not align.
Real Estate Transfers
Parents may transfer property to a child, either by gifting it outright or by adding them as a joint tenant. This can raise questions about the parent’s intentions regarding the beneficial ownership of the property upon their death.
Support for Businesses
Parents may help a child start or expand a business, but if this financial support isn’t documented, it may be interpreted as either a gift or a loan.
Understanding Resulting Trusts in Ontario Estate Law
In Ontario, the legal principle of resulting trust applies to inter vivos gifts. This presumption assumes that when a parent transfers property or money to an adult child without consideration, unless there is clear evidence to the contrary, the transfer is not considered a gift, but rather the property is held in trust for the parent’s benefit, and upon their death, in trust for their estate.
The resulting trust presumption shifts the burden of proof onto the recipient of the property to show that the transfer was intended as a gift. Without adequate supporting evidence, such as a deed of gift, written correspondence, or witness testimony, the asset may be treated as part of the parent’s estate and distributed according to their will or, if there is no will, under the rules of intestacy.
The gifts can also cause unintended consequences, especially with respect to transferring real property to be joint with a child. You can read more about that in our blog xxxxxx (Mastaneh, I think we have one about that, if not, then we create one).
Why You Should Document Lifetime Gifts from Parents
Documenting inter vivos gifts is vital to ensure that a parent’s intentions are clear and respected after their death. While it may seem unnecessary at the time, proper documentation can help avoid costly legal disputes, emotional stress, and confusion for the family.
Legal and financial advisors play an essential role in guiding families through the complexities of inter vivos gifts. A lawyer can ensure that the gifts are legally valid and properly documented, while a financial advisor can assess the tax implications. Estate planners also play a key role in integrating these gifts into the overall estate plan, ensuring fairness among beneficiaries or, if intentional, documenting any disparities in a way that reflects the parent’s wishes.
What to Do When Estate Disputes Arise Over Family Gifts
When disputes arise after a parent’s death, beneficiaries should seek advice from an experienced estate litigator who can navigate the complexities of their unique situation and offer valuable guidance and legal advice.
Looking for legal clarity on inter vivos gifts?
If you’re dealing with a dispute over lifetime gifts or want to prevent future misunderstandings, our estate litigation team at Merovitz Potechin LLP is here to help. Contact us today to discuss your situation.
The content on this website is for information purposes only and is not legal advice, which cannot be given without knowing the facts of a specific situation. You should never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. The use of the website does not establish a solicitor and client relationship. If you would like to discuss your specific legal needs with us, please contact our office at 613-563-7544 and one of our lawyers will be happy to assist you.
