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How is the transaction characterised – is it a “loan” or a “gift”?

In Australia even if a parent thinks a transaction is a “loan”, unless there is evidence (ideally by being documented) there is a presumption that the transaction was a gift. Therefore if the parent actually intends the money to be repaid at some point in time it should be documented in a relevant loan agreement or deed.

Documentation of the transaction is essential

Documentation of the arrangement is also important for a number of other reasons which include the following:

  • Sometimes these arrangements may be in place for years or even decades and it is important to clearly set out what the intentions of the parties are so as to minimise the chance of disagreements down the track.
  • Depending upon the terms and the circumstances, a properly documented loan agreement or deed may be able to provide some protection should the debtor become bankrupt or divorced.
  • Documentation can be critical in confirming the arrangements regarding the loan in the event that a parent becomes incapacitated or passes away.
  • A properly documented arrangement can also allow for appropriate security measures being put in place such as a registered mortgage or at the very least a caveat over real property.

Consideration of how these arrangements will impact on your estate planning

If you have provided “loans” or “gifts” to children and these benefits have not been equal between the children during your lifetime you should consider whether your will needs an equalisation clause so that all your children will ultimately end up with substantially the same benefits during your lifetime and as part of your estate.

For further information please contact one of our Wills & Estates lawyers on 9635 7966 or through the various contact us options on our website www.matthewsfolbigg.com.au

This is not intended to be legal advice.