April 3rd, 2023

Minimize risk when gifting assets to children

Imagine this:

You recently retired from running a successful business, and you’ve always been generous to your children. Your adult son lives with his wife and son in a condo that you purchased for him years prior. He receives an annual dividend from your family trust, and you also pay for your grandson’s private school tuition.

Then comes some bad news: your son is separating from his wife. Worse, her lawyer claims that his condo is now their matrimonial home, that his interest in the family trust is a shared asset, and that all of your past financial support should be imputed as income for the calculation of spousal and child support. There is also a demand for disclosure of your private trust and business documents.

Suddenly, you are faced with unanticipated litigation, an invasion of privacy, and the potential for a negative financial impact. Could this all have been avoided?

Yes, say family law partners Joseph J. Sheridan and Linda M. Ippolito of Sheridan, Ippolito & Associates. In a recent presentation to clients and friends of Cumberland Private Wealth, they shared this real-life story, as well as some best practices that could help protect you from experiencing something similar.

Avoiding unintended consequences

Joseph and Linda went on to outline a number of strategies that can help families pass assets from one generation to the next while minimizing the unintended consequences that can occur when a marriage breaks down.

Here are some of the concepts they discussed:

  • Domestic contracts, also known as prenuptial agreements or “prenups,” are considered the gold standard for legally defining exactly how cash and other assets should be treated both during and after a marriage. The presentation discussed how and when to approach this potentially sensitive topic.
  • Differentiating between gifts and loans with proper documentation and consistent behaviour is another way to create legal boundaries around assets in advance of a potential separation. The presentation explored this topic in depth, including pitfalls to avoid.
  • Keeping assets in your own name or in a trust is an additional strategy that can be used to draw a protective line around property that you do not wish to be “equalized” and divided with a child’s former spouse.

This summary is short and certainly not exhaustive – during their presentation and the robust Q&A session that followed, Joseph and Linda shared many more stories, insights and strategies that could be relevant to you and your family.

For access to a video replay of the full presentation, or for direct assistance with your personal situation, please contact a Cumberland Portfolio Manager.

This communication is for informational purposes only and is not intended to provide legal, accounting, tax, investment, financial or other advice. Any comments, statements or opinions made herein are those of the author and do not necessarily reflect those of Cumberland Investment Counsel Inc. (CIC) or Cumberland Private Wealth Management Inc. (CPWM).  Reasonable efforts have been made to ensure that the information contained herein is accurate, complete and up-to-date when presented, but it is subject to change without notice. This communication may contain forward-looking statements which are not guarantees of future performance.  Forward-looking statements involve inherent risk and uncertainties, predictions, forecasts, projections and other forward-looking statements may not be achieved. Forward-looking statements are subject to change without notice. CPWM may engage in trading strategies or hold long or short positions in any of the securities discussed in this communication and may alter such trading strategies or unwind such positions at any time without notice.