In today’s economic climate, Younger Generations face increasing challenges in affording major purchases like homes and cars. Unlike previous generations who could often buy homes in their mid-20s, today’s younger generations struggle with rising prices across the board.
Parental Financial Assistance: Loans and Gifts
Many parents provide financial assistance through loans or gifts to help the younger generation. However, this raises important questions about how these transactions are handled after the parents’ passing, especially when multiple children are involved.
Estate Planning Considerations
To address these concerns, parents should consider including specific language in their Wills to account for loans and gifts. Here are key points to consider:
- Loan vs. Gift Classification
It’s crucial to distinguish whether funds provided were intended as loans or gifts, as this affects how they’re treated in the Will.
- Documentation
Proper documentation is essential, especially for equalizing amounts among children. This can be as simple as a spreadsheet or as formal as a promissory note, and possibly a mortgage.
- Loan Forgiveness
For loans, the Will should specify whether they will be forgiven upon death or collected by the estate.
- Equalization Among Beneficiaries
A “hotchpot” clause (either with or without a current value on an “inflation” clause) can be included to ensure fair distribution among multiple children who have received different amounts of gifts or loans.
Key Questions for Estate Planning Considering the Younger Generations
When discussing estate plans with clients, consider asking:
- Have they provided loans or gifts to their children?
- Are these transactions documented?
- For loans, will they be forgiven upon death?
- Should gifts or forgiven loans be equalized among beneficiaries?
As economic pressures continue to impact younger generations, these estate planning considerations become increasingly important. While each estate plan is unique, addressing loans and gifts in Wills can help prevent confusion and potential conflicts among beneficiaries.
If you need help and support in your estate planning, reach out to Peter
Check out our article on What is a Hotchpot Clause
Want more information?
Are you interested in a consultation with Peter R. Welsh?
Contact me at Peter@SmartWills.ca
By telephone 416-526-3121
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This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.
