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A new way of helping your child to buy a home

Some generous parents wish to assist their children to purchase a home, especially given today’s seemingly “out-of-reach” prices.

An obstacle for simply gifting capital to children to purchase a home is the risk that a significant portion of the funds could be lost in the event of a marriage breakdown. If the property is considered a “matrimonial home” within the meaning of the Family Law Act, the entire property value is included in determining net family property.

There are a few ideas to protect funds to be invested in a home. One common strategy is having the child enter into an agreement with his/her common law partner which contractually excludes the home from net family property. Often these types of agreements are difficult to enter into, especially on the eve of nuptials.

One commonly used alternative strategy is for Mom and Dad to simply loan money to a child. The loan could be interest bearing at CRAs prescribed rate, currently 1%, and the loan could be registered against the property (typically ranked behind a first mortgage).

Another alternative could be the use of a trust thanks to a recent decision by the Ontario Court of Appeal in Spencer v. Riesberry which held that a family home owned by a trust was not a “matrimonial home” for family law purposes. This decision was based upon the specific terms of that trust. The use of a trust for this purpose is designed for children prior to marriage.

Care must be taken in drafting loan agreements or terms of a trust to ensure it achieves the intended results. Consider these alternatives only after consultation with your legal advisor.