Legal Matters

Have You Provided Money to a Child to Help Buy a Home?

Jason P. Mallory, H.B.A., J.D.

It’s old news by now that Residential Real Estate prices reached record highs in recent years, fueled largely by the increased demand for single family homes outside of larger city centers driven by the COVID-19 pandemic, and relatively low mortgage rates.

Throughout this increasingly competitive market to buy a home, would-be buyers discovered in many situations that they must offer full asking price, and in certain cases delve into a bidding war with other interested buyers. This caused many home buyers who had saved over the years for the eventual “down payment” on a home to suddenly be “priced out” of the home buyer market.

In many situations home buyers needed to find additional money in order to pay for their higher-than-planned-for down payments.

Naturally, many home buyers had to turn to family members, such as Mom & Dad, to assist with these sizable down payments.

As a Lawyer who assists home buyers, as well as the “Moms & Dads” in the preparation of Wills and Estate Planning, this sort of situation begs the question:

Is the money provided by Mom & Dad intended by them to be a “loan” or a “gift?”

The answer to this question is important for many reasons, but I will focus on some Will & Estate Planning implications in this article. If this money is intended to be a “gift,” Mom & Dad may be wise to confirm in their Wills that this was the intention. Problems can arise if there are other siblings or interested beneficiaries regarding Mom & Dad’s eventual “estate,” who are aware of the money provided to the home buyer child, but who presume that the amount should be treated as a “loan,” rather than a “gift;” otherwise it wouldn’t be “fair” to the other children or beneficiaries. One way to avoid a potential argument regarding this question between your children or beneficiaries after Mom & Dad’s passing is to clarify in their Wills that this amount was intended as a “gift,” and does not need to be repaid by the home buyer child.

On the other hand, let’s presume that Mom & Dad intended the amount provided to home buyer child to be re-paid eventually; in other words, to be treated as a “loan.” And, what if Mom & Dad pass away while there is still some or all of the original amount of money remaining unpaid back from home buyer child to Mom & Dad? In this situation, Mom & Dad should consider confirming in their Will that the amount was intended as a “loan,” and that any amount remaining owing upon the passing of both Mom & Dad should be paid back, or accounted for out of home buyer child’s share of Mom & Dad’s Estate.

Another variation is that Mom & Dad may have considered the money provided to home buyer child to be a “loan” while they were alive, but upon the passing of the last to die of Mom & Dad they intend any amount remaining owing to be “forgiven” or treated as a “gift” from their Estate.

The bottom-line is that an ounce of clarification in your Will is worth a pound of argument prevention between your surviving children and or the other beneficiaries of your Estate. 

If you have provided money to a child, family member, or friend who is also a beneficiary in your Will, I suggest that you discuss with an experienced Estate Planning Lawyer whether or not you should include a provision regarding your intentions in your Last Will and Testament.

This article was written by:
Jason P. Mallory, of Mallory Law in Blenheim, is the recipient of the Margaret E. Rintoul Award in Estate Planning

*The comments in this article are not meant as legal opinions and readers are cautioned not to act on information provided without seeking specific legal advice with respect to their particular situation.

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