December 2024 - Legal Update - The Legal Requirements For Gifting

This holiday season brings a joyful exchange of gifts, but did you know there are legal principles behind gifting in Ontario? Whether you're giving a small token of appreciation, or something more significant, here’s what you need to know to ensure that your intentions are legally documented. This article is essential for parents who are considering gifting any down-payment to their children for a home purchase.
 
What Makes a Gift Legal?
 
For a gift to be legally recognized, three key elements must be met:

1. Intention: The donor (giver) must clearly intend to make the gift voluntarily. It’s essential that this intention is free from coercion, fraud, or undue influence.
    
2. Delivery: The gift must be delivered to the recipient, either physically (e.g., handing over the item) or constructively (e.g., transferring the title to property).
    
3. Acceptance: The recipient must accept the gift, which is usually presumed unless the gift imposes a burden or liability.
    

Once delivered and accepted, a gift is typically irrevocable. However, a good deal of case law exists surrounding gifts of money from parents to children. For instance, parents may provide cash to their children when purchasing a home. Parents and children may have different understandings about whether some or all of the money is to be repaid, and when. If a dispute arises, such as whether the transfer was a gift or a loan, the courts will look at the donor’s intention and the evidence of delivery.
 
Consider the case of Rivas v. Milionis https://canlii.ca/t/h5md9. In this case, parents made cash transfers to a child and their spouse. The child separated from their spouse, and despite registering a mortgage on the child’s property for $400,000, the Court found all the money advanced was in fact a gift. No monthly or periodic mortgage payments were required under the mortgage, nor were any payments actually made by the couple towards the mortgage. This case sets a clear example of parents who were unable to protect assets from being lost in a matrimonial dispute. Other legal tools, such as a cohabitation agreement or marriage contract between the child and their spouse could have minimized the risk to the parents by ensuring their cash contributions remains with their child in the event of separation. This means parents can still provide gifts of cash while ensuring their child is given priority in the distribution of matrimonial assets in the event of separation.
 
It is unfortunate how many cases involve lawsuits between parents and children. It is therefore highly advised to consult a lawyer knowledgeable in the relationship between real estate, family law, and estate law to ensure that your cash can be preserved based on your intentions. This is true even where gifts are made after death – or debts forgiven, such as loans made to children during your lifetime.
 
If you need any advice on how best to structure your gifts and loans to your children for the purpose of assisting in a real estate purchase, do not hesitate to reach out to Liddiard Law today!
 
Michael Liddiard, BA MA JD
Liddiard Law Professional Corporation
michael@liddiardlaw.ca