Handing money to your mum and dad? You give your mum $600k.
This is to get her into quality aged care.
The Family Court gives the handsome Ken half of the $600k. It is the only asset of the marriage.
The Family Court is not interested that the money is a gift from you. Instead, build and get mum to sign this Loan to Parent Agreement. loan to parent
‘Thank you for giving mum $600k as a gift.
Mum’s Will states everything equally to us.
There are no Loan to Parent Agreement to say it was a loan. So is a gift from you. Yippee, what a great windfall.’
You lend mum $400,000 to move into quality aged care.
You build and get Mum to sign the parent Loan Agreement.
The toy boy states that her assets are $400k. He wants $200k. The Family Court is shown the legally prepared Loan Agreement. The Family Court orders that he gets nothing. This is because your mum’s net assets are nil.
Free Centrelink tool kit:
Lending to a child? Build Loan Agreement – get back your child’s loan if they divorce
To protect your parent loan build a legally prepared Parent Loan Agreement. This is on our law firm’s website. Homemade loan agreements may not work. They carry less weight with the Family Court and Bankruptcy Court. Why take the risk?
There is nothing wrong with helping your parents financially. But protect the money in case:
You can always forgive the debt, at a later time.
Never ‘give’ your parents money. Always ‘lend’ them money ‘payable on demand’. Get it back if something goes wrong.
With the Loan to Parent Agreement, you never rely on a verbal agreement. Build a Loan Agreement on our law firm website. We are Australia’s only law firm website providing legal documents online. It puts everything in writing with rules for the loan.
There are no tax issues. The interest rate for the loan is ‘as advised by the Lender’. Therefore, while the interest rate is zero you have no income tax issues. If your mum separates from her toy boy you can increase the interest rate to draw more money out of the failed relationship. There is less money for the Family Court to give to your ex-father-in-law.
A loan isn’t always for a property, medical and retirement homes. You can also fund your parent’s Superannuation fund. Speak to your Financial Planner and Accountant about this tax effective opportunity.
1. talk with all your parents and your siblings together about the loans
2. never gift parents money – only loan them money (this protects both you and them)
3. don’t rely on home-made loans or IOUs – build a Loan Agreement
Is it legal to build your parent’s Wills
In the movies, IOUs are often handwritten on a piece of paper. Sometimes instead of a Child to a Parent Loan Agreement, someone does a ‘minute’. Both approaches fail. In Rowntree v FCT [2018] FCA 182 shows the additional care required to document even simple related-party transactions, such as loans. In this case, the taxpayer, a practising NSW lawyer, claimed he borrowed over $4m from his group of private companies. The Court said:
‘Mr Rowntree has not deliberately chosen to ignore the law. His evidence presented to the Tribunal suggests that he genuinely believed that there were arguments to support his view that a loan was in existence.’
He failed. Only a legally prepared Loan Agreement satisfies the ATO, Bankruptcy Courts and Family Court.
Press ‘Start Building for free‘ button above to build:
Press the above “Sample” button to see full free sample. This includes our law firm’s covering letter.
Q: I am a financial planner who specialises in aged care advice. I am often asked: do I need to sell my home to pay the aged care bond and nursing home costs?
As the population of Australia ages, more mums and dads can no longer look after themselves at home. They need to enter residential aged care.
Usually there is a lump sum payment required. This is for admission to an aged care facility. It is called an a Refundable Accommodation Deposit (RAD). This bond ranges from $200,000 on up. The bond amout is based on:
An average Australian family, of retirement age, has almost 60% of their assets tied up in their family home. Often the sale of the family home is required to fund the aged care buy in.
Can a child lend mum and dad the money? This is by building a Legal Consolidaated Loan to Parent Agreement? This is so when mum and dad die the child gets back the money the child lent the parents? This is before the wealth in the Will is paid out?
A: Yes, you can. The Legal Consolidated Loan to Parents Agreement is structured to achieve that outcome.
The Legal Consolidated Loan to Parents Agreement is unsecured. But there is power in the Loan Agreement to register caveats, mortgages etc… over your parent’s assets. But until you do so, the loan by the child to the parents is unsecured.
While unsecured it means that if mum and dad go bankrupt the child stand in line with all the other unsecured creditors.
Q: Further to home retention and use of a capital loan from the children.
In many cases, lending to parents to pay their Refundable Accommodation Deposit ( RAD = the capital) is not a good idea. Why? It means that the parent has to pay additional aged care fees. This is because of means testing. It is calculated at 1% pa for a portion and then up to 2% pa on the excess.
A: Another way is for the children to instead pay for the Daily Accommodation Payment:
DAP = ongoing expense similar in concept to rent, and currently calculated at about 4% pa
This way there is no means testing. Mum’s family home is still retained. The children keep their funds invested. And it minimises the amount lent.
The Legal Consolidated Loan to Parents Agreement caters for lending more money from time to time. So it caters for the ongoing debt accumulated.
Answer the questions on our website
Read the Summary page
Lock and Build your document
Type in your Credit Card details
The Child to Parent Loan Agreement, our covering letter and Tax Invoice are emailed to you
Print and sign the Child to Parent Loan Agreement
What do I get?
Loan to Parent Agreement
Our law firm letter of advice on our law firm’s letterhead and signed by one of our Partners.
If you do know but are paying it in instalments, then put it all in as one figure.
Otherwise, just put in the total figure. Remember to put in the dollar sign.
If you want it all paid back on the one date, just enter that date in.
1) “Payable in instalments of 10% per calendar month”
2) “Half to be paid on 21 September 2018, and the remainder to be paid on 21 September 2019”
1) If you are charging your parents no interest, put the word “Nil”
2) If you aren’t sure what the interest rate is yet for your mum and dad, leave it as the default, which is “as demanded from the lender from time to time”
3) You can put in a flat rate, for example, “5%” (don’t forget to put the % sign in)
4) Keep it variable, for example, “2% above the Commonwealth Bank interest rate”.
5) You can also use the inflation rate. You could word it something like “calculated according to the percentage increase in the Consumer Price Index (all groups) for the average of the capital cities of the Commonwealth of Australia (as published from time to time by the Australian Bureau of Statistics or body that takes over that function)”.
Adj Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Australian law firm
National: 1800 141 612
Mobile: 0477 796 959
Email: [email protected]