Advances to Your Children May Come Out of Their Share of Your Estate

It is now widely known that the parents of the baby boomer generation are poised to pass on to their children billions of dollars in the value of their estates. Many of these parents have given or are considering gifts to their children for a variety of estate planning reasons. Often the children are in greater need at this time due to having young families or having older children entering the post secondary education system. Gifting to children can eliminate probate fees and is useful in tax planning. However one of the problems that arises in estate administration is the interpretation of a Will that provides for a gift to a child, or equal division among children, where one child has already received during the lifetime of the testator a gift for certain purposes. This principle of law is known as the presumption of advancement and may result in a specific gift or a portion of the child’s share of residue in the estate being revoked by the courts to avoid what is called "double portions".

A gift during the lifetime of a child may be presumed as an advancement against that child’s inheritance. The Courts have required that the advancement has to be substantial and ordinarily must be given early in the life of the child. It is generally said to be advanced for the purpose of establishing the child in life.

The presumption of advancement can be rebutted by the child in order for him or her to obtain the full benefit of the Will, upon production of some evidence, such as the gift being made before the date of the Will so that the testator will be seen to have intended both the prior gift and the gift in the Will.

Even if the gift is made to the child after the Will is made, the courts tend to be open to receive any reasonable evidence that will allow them to avoid applying the presumption of advancement. However, when parent’s chose to advance monies to a child for the purchase of a first home, to pay their debts or to help them complete their education, these kinds of gifts can be challenged by other beneficiaries as being a presumed advancement against inheritance. Accordingly, it is an important part of estate planning for a parent to record the intention of any advance of monies to a child as either a gift, a loan or an advance against inheritance.

It is wise for the parent to include in their Will a reference to any monies that have been advanced to a child in order to avoid any confusion. If a parent has decided that an advance is to be part of their child’s prospective inheritance, or if the presumption of advancement applies because of the nature of the gift, then the executor of the estate must consider this in the distribution. This gives rise to what is called the rule of "hotchpot" which requires that the amount of the advancement against inheritance received by the child is added to the value of the estate for the purpose of an aggregate notional value. This value is then divided equally amongst the children who are named as equal beneficiaries of the residue of the estate. By this method, the child who had the gift will receive their equal share of the estate less the amount of the advancement received.

It is interesting to note that the principal of advancement is also reflected in Section 92 of the Estate Administration Act for people who die without Wills. This section allows for the presumption of advancement to apply to funds advanced by the testator where the child has been maintained, educated or has been given money. This wording could be interpreted much more broadly and may not be restricted to substantial gifts to establish the child in life, however there are no reported cases on this section of the statute.

On a final note, there are cases where a gift to a charity or to a person such as a niece who is in a parental relationship with the testator, may also be caught by the presumption of advancement where the Will appears to give the same gift over again. The solution for parents wishing to grant outright gifts is to sign a simple deed of gift at the time of delivery. Those parents who wish to provide for an advancement against inheritance should confirm this and obtain an acknowledgment from the recipient child, as well as mentioning the arrangement in their Will or a Codicil to their Will.