Gift or loan?
With housing affordability being a major issue many parents are offering to support their children into the purchase of a home.
Often in the heady rush of doing so the parents fail to consider the implications of the step they are about to take.
Make a gift or loan?
If the payment is a gift, the parents must accept that the money is lost forever because with a gift there can be no expectation of repayment.
Many parents find the concept of no repayment difficult to accept especially when the child has been in a personal relationship which has broken up causing the gift to be subject to division between the parties.
In Family Law proceedings the lump sum contribution by a parent of one of the parties to a relationship will be credited as a contribution by that party so there will be an adjustment in the share of property in that party’s favour.
However the longer the relationship survives the smaller is the significance of the gift over time.
Sometimes the opposing party may claim the gift was given to the parties equally to further reduce the effect of the gift on the final division of property. Usually the earlier in the relationship that the gift is given, the less likely it will be seen to be a gift to the parties equally.
A card or note sent with a cheque made out to the child would make the intention of the gift clear but remember to keep a copy.
Gifts and siblings
Many families have two or more children and some parents are very careful to ensure lump-sum gifts are given equally.
This is not always financially possible and life may take a different course for each child therefore the need for a large monetary gift may not arise.
In those circumstances the parents then need to consider, when it comes to their Estate whether the gift should simply be ignored or a provision made in the will so that there is ultimately an equal division of assets.
An equal division of property will limit the opportunity for dispute between siblings after the parents have passed.
If the parents decide to make the lump sum payment a loan then it is best to reduce the agreement to writing. While requiring a family member and his/her partner to sign a loan document may take some of the warm family glow away from the arrangement this is preferable to attempting to enforce a verbal loan agreement when the child and his/her her partner have separated and there is no shred of warmth left.
The terms of the agreement need only evidence a clear intention that the loan be repaid at some time in the future and may be ‘at call’ with a small annual payment just to maintain the arrangement.
Also the parents must consider in their wills whether to forgive the loan or whether some repayment is necessary to treat all children equally.
Care should also be taken to ensure both borrowers have a will and that a lender parent is nominated as an executor. This way the parent can ensure the loan is recorded as a liability of the estate and administer the repayment.
Some simple precautions and planning will avoid potential expensive legal complications in the future.
5 June 2017
This article is general commentary only and not personal advice. For advice on your particular issue please contact me direct.