House prices across Ontario have seen incredible growth over the past 18 months, in part because of changing work and living arrangements as a result of the pandemic. As described in a recent Toronto Star article, the average house price in the GTA as of July 2021 was $1,062,256, a 12.6% increase from a year prior.
For many young adults, the only way to enter the housing market is with some help from their parents (or grandparents, or a particularly generous aunt or uncle). For those families fortunate enough to be able to provide this sort of support to the next generation, this presents a potential solution to an otherwise frustrating problem of the significant barrier to entry in the housing market. However, any significant financial gift from a parent to a child comes with important planning considerations. In today’s blog I wanted to briefly touch on two key points to take into account at the time such a gift is made.
Family Law Considerations
For many young individuals, a home purchase coincides with a major relationship change – the start of a cohabitation or a marriage. Where the family of either cohabiting individual is making a significant contribution to the purchase of a home, and the cohabiting individuals are spouses (either married spouses, or they will live there for the requisite period to be considered spouses under Ontario’s Family Law Act (the “FLA”)), the spouses should consider entering into a domestic contract to ensure that, should the relationship break down, the contribution made by each family is protected. This is particularly important where the parties are married (or may become married in the future), as a “matrimonial home” is not excluded property in the calculation of net family property under the FLA, even if one of the parties owned it in his or her sole name prior to the marriage – in short, in the absence of a domestic contract that states otherwise, the parties will share in the full value of the matrimonial home as of the date of the breakdown of the relationship.
Where parents have decided to make a gift to one or more of their children to assist in the purchase of a home, they should consider whether their Will needs to be updated to include an equalization provision of some kind, should they pass away before having an opportunity to equalize the amounts received by their children. This may be done by way of a straightforward legacy payment. Alternatively, the parent’s Will may include a “hotchpot” clause to ensure that his or her children all ultimately receive the same distributive value from the parent’s assets, during life and after death. Providing for such an equalization can help to prevent future disputes and resentments should one child not receive the same gift towards the purchase of a home as his or her siblings.
This is a brief overview of only a couple of the important considerations in making such a gift. Anyone considering making such a gift would be wise to speak with an estate planner to ensure that they have considered all of the relevant factors in making such a gift.