How to legally protect gifts to your adult children
Many of us enjoy the feeling of giving, especially to those we love. The saying that “You can’t take it with you” is a main driver to people giving large sums to their adult children or to a grandchild while alive rather than in their Will. This saying is often accompanied with wanting to see the recipient enjoy the gift by way of a honeymoon trip or to pay-off a mortgage or student loan. Sometimes these gifts are done by adding someone to title or a bank account as a joint owner. These transfers to joint ownership not only provide a gift to a loved one, they are often also done to create simplicity for the recipient as the gift then falls outside of the estate when the giving party passes away. This is because the gift transfers by right of survivorship without the need for probate, thus also avoiding probate fees.
While these gifts are happily received, they can create controversy down the line for the recipient if the intention of the giving party is not documented. This could happen if your child separates from their partner and you helped with the down payment for their family home. The former partner could argue that they are entitled to half the value of the gift. Or a transfer of property, whether a house or a bank account, into joint ownership with the recipient could lead to other potential beneficiaries of your estate starting a civil action to move the gift back into the estate after you pass away.
The key to ensuring that the intended gift is respected is to have those intentions clearly recorded and outlined. One of the documents that can be most helpful in demonstrating your intentions is a Deed of Gift. A Deed of Gift will outline what you are gifting, to whom, any reasons as to why, and on what terms. While a Deed of Gift does not prevent someone from trying to challenge the gift, it provides a fairly strong rebuttal to any challenge.
If you are planning to transfer an interest in real estate or other property, it is essential that you discuss the implications of such a transfer with a professional. There are legal consequences, as discussed above, but there are also potential tax triggers, such as capital gains. Your lawyer can work with your accountant to ensure that any gifting you plan to do will be legally protected and done in a manner that minimizes any tax implications.
Call our office to schedule an appointment with Kelly if you are thinking about giving to loved ones and would like to learn more about your specific situation.