Loan or a Gift? How “Family Loans” are Treated in Estate Law
Families often exchange money without thinking twice. Whether that be covering a down payment for a new house, paying for a child’s tuition, or transferring money in a difficult time, financial help feels informal. There is no paperwork, contracts, or repayment schedules. Everyone assumes the intention is obvious.
… and then the lender passes away.
Now, the question becomes: was that money a loan the estate can collect, or was it a gift?
In British Columbia, this is often a technical, and very litigious, point. Even small sums can trigger family disputes, particularly when siblings disagree about that the deceased “would have wanted”.
Presumption of Resulting Trust
Under Canadian law, the starting point is clear: if an adult transfers money to another adult without clear evidence of intention, the law presumes it was not a gift. It is presumed to be a resulting trust. This means that the money is presumed to still belong to the transferor and therefore their estate (Pecore v Pecore 2007 SCC 17 at para 24).
This presumption applies unless the person receiving the money can prove it was meant as a gift. The burden rests on the person who received the money. There is no presumption of advancement between a parent and an adult child in Canada. What does this mean practically? You cannot assume as an adult that your parent meant to transfer you money as a gift.
Evidence of Intention
Some of the factors that British Columbia courts look for to see intention include:
- Was there a repayment plan?
- Were payments ever made?
- Was interest discussed?
- Was there any written record?
- Did the parties behave as if repayment was expected?
- How did the transferor refer to the money in their estate planning?
Courts also examine the family’s usual practices. For example, whether the parent routinely lent money to children or regularly made gifts. Consistency matters.
The result: even informal family loans can be enforced if intention is sufficiently clear.
Loan vs Gift
If the money is found to be a loan, it becomes an asset of the estate. The executor can demand repayment. If the loan is not repaid, that beneficiary may receive less of the estate. The Wills, Estates, and Succession Act does not define directly what is a loan or a gift. However, it does state that when a transfer is found to be a loan, it becomes an asset of the estate that the executor must recover.
If the money is found to be a gift, the recipient keeps the funds. The value is not added back to the estate. A consequence of this is that other beneficiaries may receive proportionally less.
How to Protect Your Transfer of Money
The good news is that these kind of disputes are avoidable. The most effective step is to document your intention. Write an email, make a loan agreement, or leave a note. Be sure to explicitly state whether the money is a gift or a loan. This prevents expensive legal disputes and avoids fighting over intentions were in court.
