The Law Behind Family Money and Real Estate

Is it a gift—or a $500,000 mistake? 

Gavin Tighe and Stephen Thiele examine one of the thorniest issues in today’s overheated real estate market: when parents help their kids buy a home, is it really a gift? Or a ticking legal time bomb? 

Using a fascinating case as their backdrop, they unravel the legal complexity behind intergenerational transfers of wealth, gift letters, resulting trusts, and how mortgage requirements can force a legal narrative. 

Before you write that cheque—or accept it—listen in to learn how to avoid turning generosity into a courtroom battle.

Listen For

3:18 “Here’s $500K, No Strings… Right?”

8:33 “Meet Mr. K: The Case That Cracked a Family”

14:51 “Why Courts Hate Gifts”

22:16 “When the Milk Sours: How Litigation Begins”

27:20 “Family, Trust, and the Cost of Not Documenting”

Contact Us

Gardiner Roberts website | Gavin email | Stephen email  

Transcript

Gavin Tighe (00:00):

When things are good between people, the thought of all of the documentation, et cetera, really doesn't cross their mind. But then things go sour and all of a sudden it's like, I wish I had the documents. And I've said this before, the reality of contracts is they're only necessary when people don't lip by them. Hello and welcome to the next episode of Beneath the Law. I'm Gavin Tighe. Stephen Thiele, how are you today? I'm good, Gavin. How are you doing? I am pretty good. We're all heading into a long weekend here in lovely Southern Ontario and winding down what was excruciatingly hot, but beautiful

Stephen Thiele (00:43):

Summer Gavin, we're lawyers, we don't have long weekends. They don't exist. Haven't you figured that out yet?

Gavin Tighe (00:51):

Long dates and long nights, but no long weekends. How's that? So speaking of hot situations, the housing market and the affordability crisis as it's been called, is a big deal. I mean, for young people trying to get their first home, it's almost insurmountable the cost of a house these days, given what people are making and the fact that the amount of the down payments and the stress tests and all the rest of it. And it really is a serious challenge for this generation to try to own a home

Stephen Thiele (01:34):

A hundred percent. And we know from a political standpoint that government is not building homes the way that they used to. Certainly after World War ii, a lot of homes were built, starter homes I guess they would be called, which were affordable for people coming back from the war and young families, but certainly in the big cities and even outside the big cities. Gavin, I'm shocked at the prices two hours north outside of Toronto for housing.

Gavin Tighe (02:04):

Oh yeah, look, I mean, you can't look at a garden shed in Toronto for under a million dollars. And in order to even think about buying that, you have to have a substantial amount of money to put down as a down payment. I think to qualify on a million dollar house, you'd have to have at least a hundred thousand dollars in cash to put down.

Stephen Thiele (02:28):

Oh, probably more than that. You probably need something like two 50, isn't it? 25%.

Gavin Tighe (02:33):

And for someone just starting out a hundred thousand dollars or $200,000 in cash is a lot after tax money is a lot of cash.

Stephen Thiele (02:46):

And young people aren't making that kind of dough.

Gavin Tighe (02:51):

And certainly not only are they not making it, even if they are, the cost of everything else, rent and food, and just life is so high that it's impossible for many younger people to put that type of money aside. And by the time they do, they're not younger anymore. They're old fogies like you and I speak for yourself. So a lot of parents, oh, well you're young at heart. A lot of parents will seek to help their kids out and kids who are fortunate enough to have parents who can help them out with some of the money towards a down payment. And that is an interesting dynamic because it's always a tricky situation with people who are handing over sizable amounts of money in hundreds of thousands of dollars, half a million dollars. The notion that, okay, here you go, here's half a million bucks, no strings attached.

(03:57):

That's a pretty big deal. I mean, that's a pretty nice gift, if you will. So we're talk about this very, very common practice that parents helping out their kids. And the other thing too is that oftentimes that the big issue for a lot of parents is, well, I want to help out my child, but they're married and I'm going to give them some money to put down on a new home, of course, which they will live with their spouse. And at least in Ontario, that raises a whole series of issues because you may say, I'm very happy to see my child get a few hundred thousand dollars, that's great, but I was going to give it to them when I die anyways. I might as well give it to 'em now. But I really don't want that if things go on the rocks in their marriage. I really don't want this person who is not my child and who may be my ex in-law getting half of my money, and theoretically the matrimonial home, regardless of who owns it, if it was bought with an occupied as such, they may have a claim to it. So a lot of people are very, very hesitant to kind of let go of the money, no strings attached.

Stephen Thiele (05:16):

Well, and look, I mean this is kind of a common dispute that we've seen in the law every year. I mean, these cases come up where as you say, parents help out their children or there's other, what are called inter-vivos transfers to other relatives or spouses or girlfriends, boyfriends, that kind of thing of significance, amount of money. One of the people takes the property in their name and the party that's given the money does not have their name on title. And so disputes arise in cases of certainly a matrimonial breakdown where there's another person involved or just in terms of other breakdowns, families don't necessarily get along all the time and dynamics shift and all of a sudden the parent or the person who's given the money wants their money back or they want to claim a beneficial interest in that property.

Gavin Tighe (06:26):

Yeah, same difference. I mean, the issue becomes that what was once a gift now is not seen as such. And let me

Stephen Thiele (06:37):

Throw another, oh, it wasn't a gift in the first

Gavin Tighe (06:38):

Place. Well, it may be right. What are the problems? I think that you get into now, and this is really probably the real dynamic is the third wheel in this equation is the bank and banks are saying, okay, that's great. You need to put down X dollars to buy this house, or we won't give you a mortgage. They want you to have equity in the property. They are only going to lend a certain percentage of the value of that home, and they want the rest of that value to be covered by you with your money. In other words, that's really where the risk in home ownership is, is that first layer or the deposit money. The bank is looking at it like, well, even if the value drops, we'll still get paid. There's still enough equity in that house for us to get our loan out, but we want your money in there first.

(07:26):

But the key point is it's got to be your money. What they don't want you to do is go borrow money from somebody else so that in fact you have no equity in the property. You've just got a bunch of debt and a house in your name, and then they're left try to recover on it. So banks will require very, very often, I think almost always, that if a parent is helping out a child, for example, on the purchase of a home, and that's where the money's coming from, then the parent is required by the bank to sign a gift letter. In other words, to say, you parent aren't a creditor anymore. You parent don't have an interest in this. You are giving no strings attached this money to your child, such that the money that is going into the transaction is the child's money. That title to those funds has transferred, no strings attached. And I think you see that very, very often in almost every mortgage situation where the funds are coming from

Stephen Thiele (08:29):

Apparent. Well, I think that's becoming more common. And just for the listener, what we're talking about is the law of resulting trust and gift, which kind of arose in a very recent decision. And like I said, there's lots of decisions that come out on this quite regularly about a father. The case is called, I'm going to just call it Clemens because the first last name of the other person is a little bit will be a word salad kind of name. And I'm certainly, I'm going to mispronounce it, so I'll call it Clemens with a K, by the way, not a C,

Gavin Tighe (09:14):

Mr K.

Stephen Thiele (09:15):

So it doesn't involve pinball Clemens, it's a K Clemens or Roger Clemens. So we had a father who gave his two children over $500,000 to buy a house.

Gavin Tighe (09:30):

Well, Gabe is the operative word

Stephen Thiele (09:32):

He provided, provided that's a better word.

Gavin Tighe (09:35):

Money moved from dad to kid. The vehicle by which it moved was the issue. Was it a loan? Was it a gift? And it's interesting to me that I think it was was his biological son and his daughter-in-law. And what was interesting to me was the advance of the funds to be generic occurred because the son and the daughter-in-law lined themselves up with the father in his divorce.

Stephen Thiele (10:09):

Right? In his divorce. That's

Gavin Tighe (10:11):

Right. They took his side in the divorce and he rewarded them or didn't, I dunno if he rewarded them, but he moved in with 'em and then they needed to buy a bigger house and he, as you say, advanced over half a million dollars that they could put down on the new purchase it to say that the alliance that had existed in the divorce seems to have broken down at some point.

Stephen Thiele (10:37):

It sounds like alliances between different countries.

Gavin Tighe (10:40):

They

Stephen Thiele (10:40):

Go along pretty good and then something else happens. Somebody gets elected and away you go.

Gavin Tighe (10:45):

Yeah, well anyway, so the way it rolled, we certainly don't know from the case all of the salacious details of the breakdown of this family relationship, but ultimately the father and the son had a falling out. The father said, give me my money back. The son said, no, no, no. It was a gift fortunately for the son, the bank had required and I think required, I don't think this was an option. I think the bank said, look, dad, if you're giving the money, you got to sign a letter that says you're giving the money. It's an irrevocable gift and it's son's money. And dad had signed that presumably as part of the package to get the mortgage in the first place.

Stephen Thiele (11:35):

And I think that's really curious about the case. I mean, the father wanted to claim the resulting trust, a proprietary interest in the property. And there seemed to be some evidence that when the money was first given, he was supposed to be on title to the property, which would've definitely protected his proprietary interest in the property, but his name was not put on title. And then he signed the skiff letter, which as you say, it was basically unconditional. The money was non repayable. And he acknowledged that it was a gift. The children signed an acknowledgement as well that they received the money as a gift and away they went living together. I think it's almost like 15 years or so. And then the father comes back at that period of time and says, Hey, by the way, I have an interest in this property,

Gavin Tighe (12:33):

Or you owe me 500 grand

Stephen Thiele (12:34):

Or you owe me, well, 500 grand as a loan. Once you say that there's a loan, you're not getting a resulting trust in that that's a different transaction

Gavin Tighe (12:43):

Or resulting trust in the resulting trust is for the non-lawyer listeners. The law creates this fictional trust, if you can call it that, as a remedy to address certain situations. And if I recall correctly, the notion of resulting trust came out of family law and to begin with, I think it was the pectus and Becker case was one her kind of a younger. But what that was is that the loss, there was an issue that the spouse had worked and put money into this property and this business, et cetera as I recall it, and then had no actual official interest. And so the court said, well, yeah, but they put benefit into the property or the asset, therefore we're going to say they have a beneficial interest, a trust that results from their input of value.

Stephen Thiele (13:39):

And I mean there are a couple of concepts. There's the resulting trust and then there's the constructive trust. The resulting trust is much more where there is that transfer of some kind of funds that somebody else uses and puts essentially property in their name in most cases. And the law presumes that when there is a gratuitous transfer or a transfer without consideration, that the person who's providing the funds actually takes the ownership in the asset that is purchased with those funds. So now,

Gavin Tighe (14:19):

And mixing my metaphors between constructive and resulting, I apologize, but both are remedies that the court makes up. Frankly, they are after the fact. There's no deed of resulting trust. What it is is a remedy that the court imposes based upon the injection of value into an asset either through blood, sweat, and tears or cash. Correct. And I think it's also important for the listeners to understand that courts generally don't like gifts. Gifts is a presumption against gift, and the court presumes it can be rebutted in the sense that you can prove that it was a gift. But you can imagine that particularly in the state issues where someone got a large sum of money from a deceased person before they died and then there's a death and then the estate comes along and says, oh, well you got to pay this money back. And they say, well, no, no, no, it was a gift.

(15:27):

I mean, frankly, everyone's going to say that. So what the court says is, well, sure you could say that the dead person's not here to say different, but you got to prove it. The onus is on you to prove that it was a gift. We will presume that it was not a gift. We will presume that it was a bargain loan, whatever. Unless you can show something to the contrary. So if you had, I don't know, a letter that said, oh, here's my check as a gift to you for a million bucks, and I hope you enjoyed live a long, happy way, that would be proof. But there has to be some corroboration, I would think, or somebody or a lawyer if that was involved, or even anybody that was involved, someone who's a witness, they can say, oh, yeah, yeah, yeah, no, that was a gift that they told me that they had given them the money to this person or I was there when they did it, that type of thing. But otherwise, unless the person who claims gift can prove on a balance of profitabilities that it was a gift, it's not a gift.

Stephen Thiele (16:32):

And so you've added the twist in the case where the, let's call them the donor or the transferor, the person who provides the money has died. The evidence act actually contains a provision in Ontario that requires the recipient of those funds where the estate brings an action to corroborate their evidence. And they can't just rely on a, he says kind of paradigm and say, well, it was a gift. There has to be some other evidence, clear evidence that supports or corroborates the fact that it was a gift. So that's their onus.

Gavin Tighe (17:26):

I'll give you a factual example. It's funny. I remember it very, very well. It was actually the first case, first trial I ever did as a lawyer related to a claim of gift. And it was as would probably not be an unusual situation with the person who had advanced the funds was the ex ex-husband of the person who had received the funds. There was all sorts of argument about whether it was a loan or a gift. He said, no, no, no, it was a loan. They said it was a gift. We won the case on the basis that there is a presumption and the evidentiary burden fell on the person claiming gift. And actually it's funny because I know that now the test now is a balance of probabilities, but back then, that was a long time ago, 32 years ago I think was my first trial.

(18:22):

It was beyond a reasonable doubt. Oh wow. You had to prove that it was a gift. So the law has relaxed a bit in terms of the burden of proof that now it's only on the usual civil standard of balanced probabilities. But it used to be almost impossible to prove gift if it was just a he said, she said contest without some sort of contemporaneous evidence. And I think now maybe it's a little easier. The court can believe one party over the other, but as you point out, if the person is deceased, you got to have something more than that because they're not there to deny it.

Stephen Thiele (18:58):

And look, I mean we're seeing this, as I said, more and more often, we've got a population where inverted pyramid is what it's called where we have a lot more older people than we have younger people in society. And as you said, the older folks, the old fogies are the ones who have most of the wealth. The younger people don't have the wealth and older people need a lot of care as both you and I have experienced with our own parents, respective parents. And it's pretty easy, particularly for elderly people who are isolated to fall victim to people, whether they're caregivers or friends or others, to have funds transferred to them without consideration. And then for those people to say, oh, well that money was gifted to me when it really wasn't. Or the elderly person may have been under some form of undue influence, we just don't know. Which is why the law requires that corroborative evidence when somebody has passed away.

Gavin Tighe (20:14):

Yeah, I think that's a sensible precaution to prove that, as I said, everyone's going to say that anyone who received the funds, nobody wants to pay the money back. So no, it was a gift. But the reality is I think you have to look at that contextually. I mean, giving somebody a hundred bucks in their birthday card is one thing. I mean, you start a checks for millions of dollars, maybe not. So to me, for significant amounts of money, particularly and or valuable property, I would think that corroboration is important. And that could be a card. I mean, I'm kind of being facetious about that, but if you had a happy birthday card, I hope you have a great day and there's a check for a million bucks in it, that might be corroborating.

Stephen Thiele (21:04):

But it really gets to what in my view, Gavin is the most important point. I mean, you work in litigation as a trial lawyer, as a litigation lawyer, I work in litigation supporting you in terms of back office providing you with cases and that kind of thing and helping develop the legal arguments. But at the end of the day, people should put themselves in a position to avoid litigation. And the best way to do that is to document, so if I'm the giver of the money, I need to document that. What is it? Is it a loan? Am I taking a proprietary interest? If it's a proprietary interest, put me on title to the property then, or at least document that. If it's a loan document, the loan with a promissory note or some other kind of thing, I mean take notes again, make them contemporaneous. That would be helpful. But it's not the best. But document. And on the other side, it's the same thing. If I'm getting the

Gavin Tighe (22:08):

Gift, this is the problem,

Stephen Thiele (22:10):

Write something that at least acknowledges the gift. But people don't do that.

Gavin Tighe (22:14):

The problem is always this, by the time this is in front of a judge, the milk is soured, right? So with the money changed hands, in our case for example, when dad handed over the 500 grand, it was because they were in a good relationship. Things were good between them, whether it was whatever the reason is. I mean, they didn't document it for all sorts of, if it was a loan, an undocumented loan, there must have been some level of trust. There was documents that suggested it was a gift. And I'm talking about why that document came to pass. I kind of suspicious of it to be blunt because I think people know they have to do it in order to get the mortgage so they do it. So whether it's actually really, is it really a gift? The short answer is yeah, it really was a gift because the letter was the end of the case as far as the father was concerned.

(23:10):

But what's hard for people, and I think I completely understand this, when things are good between people, the thought of all of the documentation, et cetera, really doesn't cross their mind because they're thinking, well, I'm never going to need that. This is my son, this is my nothings that were going to happen. But then things go sour and all of a sudden it's like, I wish I had the documents. The reality of contracts, and I've said this before, the reality of contracts and most legal documents is they're only necessary when people don't lip by them. I mean, if a contract people do what they're supposed to do in a contractual relationship, nobody ever looks at the contract because nobody's ever got a reason to complain about it. The only time the contract that's pulled out of the drawer is when somebody breaks it. So really that's contracts or any other legal document really are about when things kind of go sour. And that's unfortunately when things aren't sour, people don't like to think about it, get it sour. But it does. And it did in this case. And the father who signed the bank letter that said, this is a gift, was stuck with it, even though I think his evidence probably was, oh, well, yeah, but that was just a formality I had to sign to get the mortgage and really wasn't what it was supposed to be. The court didn't buy it.

Stephen Thiele (24:33):

And it sounds like too, Gavin, from a legal perspective, he seemed to want to shift the gold posts as the case went along a little bit, which also probably didn't help him very much. Yeah,

Gavin Tighe (24:46):

No, he was incredible virtually. Initially he said he was supposed to have a title interest and then he said was loan. He was all over the place, right? Ultimately it was anything but a gift as far as he was concerned. And I think what the court has to do is put themselves in the moment when the transfer of the funds occurs. What was in the intention of the parties at that time? Not sort of after the fact when, oh, I got mad at my son. Now I'm going to say that money is, that's a loan. People have changes apart. The question is where was their heart at the moment that the money was given over? And the court said it in the letter.

Stephen Thiele (25:28):

And sometimes that's very difficult and that's difficult. If there is no documentation,

Gavin Tighe (25:34):

Well, as we pointed out, it's impossible because if there's no documentation, oftentimes you won't defeat the presumption. You won't get over the hurdle of the burden of proof because the presumption is that there was not, the presumption is that it was a bargain of sub description. So if you're the person receiving the funds, it's in your interest to get the birthday card. It's in your interest to get something in writing. That said, a deed of gift is a thing in the sense that it simply says that I am handing this money over to you. It is your property as a gift. And that is not in the interest of the donor of the gift. It is in the interest of the doni,

Stephen Thiele (26:22):

And it is their burden.

Gavin Tighe (26:24):

So you not only have to look a gift towards in the mouth, you got to give 'em a piece of paper and a pen at the same time. Anyways, the bottom line was that dad got nothing. Dad lost his $500,000. I expect that the relationship, I'm sad to say, and I don't know these, but I'm always sad to see when a family is in this situation. I expect that having gone through a trial on this, that repairing that relationship will be exceedingly difficult. Stranger things have

Stephen Thiele (26:55):

Happened. No, but you know what? Look, I mean, families are what they are. Everybody's got their own familial stories to tell. And as you alluded to, I think in the family situation, it's very difficult sometimes to document things because family members are, you got to trust one another, your blood relations zone,

Gavin Tighe (27:21):

Right? It's a hard thing to say to your parent, A thanks for the money.

Stephen Thiele (27:25):

Give me an agreement. Can

Gavin Tighe (27:26):

You sign this paper? Because it's almost saying to them, oh, I think you're going to change your tune for me at some point in time. I think that it is a difficult thing to do, but it matters particularly in the situation. And you see this a lot I think, in familial situations where a parent, for example, gives one of the children money because they needed money at some point in time and it was a gift. But then when the parent passes away, the other siblings come along and say, Hey, wait a minute, why did you get that money? You got to pay that back to the estate. So that I get my share of it too. So all of these things are, things are important in regards to documenting properly a gift. But in any event, Stephen, that's always an interesting conversation. And this one I think pretty practical. So for people who are in the situation of helping out their kids, those gift letters that the banks makes you sign, they matter. So if you're really going to give a gift, give it like you mean it.

Stephen Thiele (28:37):

And that's because no one is above the law, but everyone is beneath it. A hundred percent.

Gavin Tighe (28:51):

Thanks very much everybody. Please rate us, give us your reviews, comments, the kudos, insults name calling. We don't care. Any reaction is better

Stephen Thiele (28:59):

Than that. No, no. Don't insult us.

Gavin Tighe (29:02):

And please stay tuned. Tell your friends about if you enjoyed this episode, if it gives you some insight into legal matters in a real life application, please tell your friends about it. We're always looking for new listeners, new subscribers. And Stephen, thanks so much. Talk soon. Cheers. I.