Insights / December 8th, 2021

Family Loans - Have you considered gifting or providing financial assistance to your children?

Media Release - 30 November 2021
Comments provided for News.com

Natalie Abela, a Director of commercial law firm Cowell Clarke, said there is a range of considerations for both parents and children when it comes to family loans or other forms of financial assistance.

"While most parents provide financial assistance to their children with the best of intentions, there are still potential issues that may arise of which both parties need to be aware, Ms Abela said.

"If it is not intended to be a gift, it is wise to ensure that the terms of the arrangement are properly documented, such as by way of a loan agreement.

"If it is real estate that is being transferred from parent to child, the parent may wish to hold security over the property, for instance by way of a mortgage. The parent may also wish to consider holding the property with the child as joint tenants so that the child is unable to sell their share in the property and the child only becomes the sole owner of the property upon the death of the parent.

"The parent should be mindful of gifting to one child where there are other children, as this inequality may give rise to a claim against the parent's estate upon death.

"Alternatively, the parents may wish to consider equalising the position of their children under the terms of their Will.

"The parent should also be mindful that once assets are gifted to the child, if that child is in a relationship and that relationship breaks down, that asset will form part of the pool of assets to be divided amongst the child and the former spouse/partner.

"If it is not a gift, but a loan to the child, then ensuring that the loan is properly documented or security is taken over the asset (such as a mortgage), will prevent a partner from gaining access to the asset in its entirety. Additionally, in the case of bankruptcy, if the asset is sold, the security provides a level of protection, and if done correctly, will ensure the parent is paid out their loan before the bank or the trustee take monies owed."