Christmas is that wonderful time of the year when we shower our loved ones in gifts to celebrate the festive season. While it’s a joyous time for both those who are giving and receiving its important to forward think and know the ramifications associated with gifts in a Family Law and Estate Planning context, particularly substantial monetary gifts.
Let’s imagine Mr and Mrs Claus want to give one of their elves $100,000 to help he and his new elf girlfriend buy a new pad in the North Pole. It’d be important that Mr and Mrs Claus to be wary of whether they are giving the $100,000 to their elf or to both he and his girlfriend and also whether it is it in fact a gift or a loan?
Mr and Mrs Claus should consider the following things:
- Is the money going to be a “gift” or a “loan”?
- Will the money be given exclusively to Elf or to both Elf and his girlfriend?
- Is the transfer of funds documented in an agreement?
Family Law considerations
Generally, where money is given as a gift to one or both parties and money is directly applied to an asset in the pool, for example by purchasing their new home in the North Pole, the money would be thrown in the bowl of assets if the parties separated and divided in a property settlement. If Mr and Mrs Claus gave the money only to their Elf then it may be argued that Elf is entitled to a greater share of the gift because it was a contribution made by him to the pool of assets through Mr and Mrs Claus. If however, the $100,000 was a loan and there are supporting documents to support such, then it would be treated as a liability of the parties and the full $100,000 would need to be repaid to Mr and Mrs Claus from the pool of assets in any property settlement.
Estate Planning considerations
What happens to the $100,000 if Mr or Mrs Claus died?
- Would Elf be required to pay back the $100,000?
- Would Elf be required to reduced his inheritance by $100,000 in comparison to his sibling Elfs?
- Does Elf keep the $100,000 and receive the exact same inheritance amount as his Elf siblings who have not received anything from Mr and Mrs Claus in the past?
The answer depends on whether the $100,000 was a gift or a loan. Loans usually have to be repaid or accounted for before an inheritance is distributed.
Some top tips for gift giving this year is to ensure that substantial monetary gifts are well documented to prevent one party later claiming the funds given were a gift not a loan, or visa versa.