After a lifetime of working hard, raising children and socking any extra money away, most people of retirement age just want to relax and spend some of their hard-earned funds on family members. But in the throes of estate planning in Canada, few people give pause to what would happen to any money shared with an adult child if that child’s marriage or live-in love relationship goes on the skids. It’s an important question to ask.
The question is especially important for those who have amassed a sizable amount of money over the years. So, when planning their estates, these people need to question how to go about safeguarding the money from getting into the hands of their child’s ex-spouse or stepchildren. Giving large amounts of money to children who are married or living with a partner should be done to protect the money should an ex-partner lay claim to it.
To halt a dependency claim on big monetary gifts, parents can give the money over a staggered period so it’s not seen as part of the adult child’s normal income. Even though the child is an adult, the parent could also set up a discretionary trust. The would keep the parent(s) controlling the money while still keeping the children) as beneficiary.
Parents gifting their adult kids with large sums of money should also insist that their children keep those funds in a separate bank account from one they may share with a spouse or partner. The Family Law Act of Ontario looks at these funds as an inheritance and, as such, are exempt when calculating the assets of couples who are divorcing. That is why they should be kept in a separate account — so they are trackable.
There are many things to take into consideration when estate planning. There are issues that only a lawyer experienced in wills and estates law in Canada would be in a position to answer. Sharing money with family members is truly altruistic. Making sure that money stays in the proper hands is prudent.
Source: theglobeandmail.com, “A worry for the wealthy: keeping cash from childrens’ ex-spouses“, Marjo Johne, Aug. 17, 2017