With the cost of buying homes these days, it is becoming increasingly common for parents and other family members to help their children get into their first home.
Sometimes the money is intended to be a gift, and sometimes it is intended to be paid back. The issue is that, because everyone is on good terms at the time of purchasing, the arrangement is often never put in writing.
We all know that circumstances can change, and when they do, it can become difficult to work out what everyone originally intended.
It becomes particularly important to know whether the money was intended to be a gift or a loan if:
- There is a relationship breakdown, i.e. a couple separates;
- the property is sold;
- a child passes away;
- the money was advanced by another family member; or
- siblings later disagree about how the financial assistance was intended to be treated.
Where there is no written record, one person may believe the money was a loan while another believes it was a gift. If the funds were provided years earlier, memories can differ and it may be difficult to establish what was originally agreed.
Things can become even more complicated where a bank is involved. As part of a finance application, banks may require parents or family members to sign a gifting certificate confirming that the funds do not need to be repaid.
However, this is not always the only option. In many cases, banks may allow a Deed of Acknowledgement of Debt to be entered into, provided there is a provision confirming that the family member or parent cannot call up or demand repayment of the debt during the term of the bank’s loan.
This can allow the arrangement between family members to be properly recorded while also protecting the bank’s position. Any such arrangement should, however, be discussed with the bank and properly documented.
The documentation does not always need to be overly complicated. Depending on the circumstances, a straightforward loan agreement, Deed of Acknowledgement of Debt, Deed of Gift or other written agreement may be enough to clearly record what has been agreed.
It is much easier to have these conversations and document everyone’s intentions at the outset than to try and work things out after circumstances have changed.
If you are providing financial assistance to a family member to help them purchase a property, getting advice early can help ensure the arrangement is properly documented and reduce the risk of misunderstandings or disputes further down the track.
This article is intended as a general overview and discussion of the subject dealt with and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. We will accept no responsibility for any actions taken or not taken on the basis of this article.
Copyright Blackwood Montagna Ltd
