Parents who provide money to help their children through the economic downturn are being advised to carefully document any transactions to avoid family disputes down the track.
Leading law firm Maurice Blackburn is also reminding parents to consider how any financial assistance they provide could affect their future estate planning.
“It’s a common rite of passage in many families that parents loan their children money for any number of purchases, with research showing ‘the bank of mum and dad’ is one of the nation’s largest lenders when it comes to buying a home in particular,” said Andrew Simpson, a principal at Maurice Blackburn.
“Given the current pandemic-related economic crisis, we expect more Australians will turn to their parents for financial assistance, including for living expenses like bills and rent.
“That is all entirely understandable, but in my work I have seen too many occasions where such situations can end up coming between family members.
“I urge everyone who is giving or receiving money from family to document the terms of the arrangement to try and avoid any problems down the track.
“Something as simple as an email outlining whether the money is a gift or a loan can help avoid family disagreements and reduce the likelihood of legal disputes arising.”
Mr Simpson, who heads the Wills and Estates practice at Maurice Blackburn, said his top five tips when giving money to family were:
- Document the arrangement in writing. For a smaller amount of money, it could be as simple as writing an email. For larger amounts of money requiring repayment, it may be worth drawing up a more formal loan document
- Clarify whether the money is a gift or a loan. Disagreements over this point are the source of many disputes, especially from siblings and other family members when it comes to administering a person’s Will.
- Review your Will. Check if your Will needs to be updated to include the gift or loan so that there is no ‘double dipping’. Questions to consider include whether the money is an advance on a child’s inheritance, and whether repayment of the loan is required as part of estate administration.
- Plan for any family law implications. Consider what happens if your adult child is in a relationship, and that relationship breaks down. The money could end up in the general marital asset pool and you may need to go to court to get it back.
- Consider whether you can afford to make the gift or loan. Do the sums and make sure that providing the money doesn’t leave you in a vulnerable financial position.