Mortgage Down Payment Help From Parents: Is It a Gift, Loan, or Trust?

My mom gave me $50K to help with my down payment: is it a gift or is it a loan or did a trust just get thrown at me?

Many parents are financially assisting their adult children to purchase real estate. Sometimes it’s a few thousand dollars; sometimes significantly more. Is this financial assistance a repayable loan,  a gift with no strings attached or will a court imply a (resulting) trust between the child and parent i.e. is the child holding the funds/property in trust for his parent?

Succinctly put, unless there is clear evidence to the contrary, there is a presumption of resulting trust i.e. the adult child is holding the property in trust for his parent (which means that the parent remains the legal owner of the property). It’s not a gift! If documents are prepared to disclose the outright “gifting” intent of the parent, they should be clear and unambiguous, and the parent must have the mental capacity to understand the nature, scope and effect of what he or she is doing. [The child should not be a witness to the “gifting” papers nor should he present when they are signed. If the child is leery about his parent having a change of heart down the road and demanding repayment of the “gift”, he should ensure that his parent obtains independent legal advice before signing the “gift” papers. If the child exerts undue influence on his parent to make the gift and sign the “gift” papers, a court could set it aside and imply a trust.]

By the way, where the recipient is under 18 years, there is a presumption of a gift, not a loan or resulting trust.

To complicate this issue a little more: what happens when the bank manager tells you that in order to qualify for your mortgage, your mom needs to sign a letter confirming that it’s a gift? But mom needs the money back. She’s just helping you out for the time being. It’s not a gift, it’s a loan. One thing’s for sure: you can’t mislead the bank. If you are confronted with this issue, call me for possible suggestions.

[This article is intended to address real property issues and does not address any Limitations Act or  family law issues.]