If you are planning on deviating from divvying up your estate evenly, the best advice is to call a family meeting
and get it all out on the table so there aren’t any surprises when you’re gone
the farm while the other two go to university and live and work in the city,” he says. “Let’s say the farm is worth $3 million. Is it fair to take away 20, 30, 40 years of work the one child has put in and give $1 million to each kid? I don’t think so — sweat equity should play a part here. Instead, maybe the farm should go to the child who stayed back and, say, the life insurance money or other assets should be split among the other two children,” says O’Toole. If you’re planning on deviating from divvying up your estate evenly, the best advice O’Toole has is to call a family meet- ing and get it all out on the table so there aren’t any surprises when you’re gone. Randall agrees, and adds that this may be a good time to include a “hotchpot clause” in your will, which basically says that any giſts, loans or advancements parents give to their children will be considered in the division of the estate and subtracted from that child’s portion. Income taxes are another complicating factor when dividing
up your estate among your children, says Kurt Rosentreter, an accountant and certified financial planner at Manulife Securi- ties Inc., in Toronto. The tax bill for all your assets falls to your estate, regardless of whether those assets are in the will or not. So if, for example, one of your children is listed as the benefi- ciary of your RRSP, he or she will get that money directly but the taxes will be due from the estate. Make sure you take the tax cost of your assets on death into consideration in order to end up with the distribution to heirs that you desire.
Question: What’s the best way to lend money to my adult children?
Answer: Helen, 76, frequently gave her son, Brian, money and she used to pay his bills. The payments started when Brian, who is now nearly 50, first went to university — Helen paid for what Brian’s student loans didn’t cover. When he quit that school, came home and started at another university, Helen paid for his residence and later a room he rented from a friend.
She continued to give him money over the next several years — sometimes he worked, sometimes he didn’t. He’s also lived with her on and off rent-free. “I’ve supported him for about 20 years; I’ve given him about $30,000,” says Helen. For parents who can afford to lend their child money, Per-
rault says it is important to lay out clear terms of repayment and that these conditions should be signed by both parties. And if the child has a spouse who will also benefit from the loan, he or she should sign as well. “Some parents may think that an of- ficial signed document is overkill, but what they don’t realize is that these documents become a necessity in the following circumstances: death of the parent or child, divorce of the par- ent or child or insolvency proceedings of the parent or child,” she says. “In the case of a deceased parent, it will be important that the will stipulates how this loan will be dealt with. It is most important if the child has siblings who did not get a loan. This will avoid disputes.” As for parents who cannot afford to help their children finan-
cially, yes, you may feel guilt, but that doesn’t mean you should fall deeper into debt to spot your kids extra cash. “This is where needs and wants come in,” says O’Toole. “I see a lot of parents who want to help and do more than they need to because their kid, for example, lives in a $300,000 house and wants to move into a $600,000 house. You shouldn’t remortgage your home or dip into your RRSPs for this — both will have a negative im- pact on your retirement planning and cash flow. It’s a bad idea financially.” That said, O’Toole acknowledges that because par- ents love their kids unconditionally, the truth is, it’s sometimes hard to say no. So if you’re going to lend your child money, get the cash from your line of credit or TFSA. If this isn’t doable — and if the money is for a want, not a need — tell your offspring you just don’t have the funds and check your guilt at the door.
LISA VAN DE GEYN is a Toronto-based freelance writer and contributing editor to CPA Magazine
JANUARY 2018 | CPA MAGAZINE | 41
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