Loan to parent? You give your mum $400,000 to get her into quality aged care. She then marries Ken. Later they divorce. The Family Court gives him half of the $400k. It is the only asset of the marriage. The Family Court is not interested that the money was a gift from you. Instead, build and get mum to sign this Loans to Parent Agreement. loan to parent
Or, mum dies. Your siblings say ‘thank you for giving mum the money 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 it was a gift from you. Yipee, what a great windfall.’
You lend mum $400,000 to move into quality aged care. You build and get her to sign the parent Loan Agreement. She marries a guy in the retirement home. They then divorce. He wants half of her assets. The toyboy 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.
Mum dies. Your greedy siblings are pleased to see that Mum’s estate is $400k from the sale of the nursing home. But mum’s estate has a $400k debt owing to you. You get your $400k back first.
To protect your parent loan build a legally prepared Parent Loan Agreement – on a 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:
1. of mum’s divorce lend money to parents
2. your parents go bankrupt
3. your dad suffers from drugs prescribed by his doctor
4. your mum suffers a mental condition
5. your parents stop loving you
6. you run out of money yourself
7. your parents leave everything in their Will to all their children equally – you end up giving money to your siblings
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 website. We are Australia’s only law firm website providing legal documents online. It puts everything in writing with rules about 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 toyboy 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
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  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’ button above to get our:
1. Loan to Parent Agreement – ready to sign
2. our law firm’s letter of advice. Press the above “Sample” button to see a sample
You are building your Loan to Parent Agreement on a law firm website. Telephone us for legal advice. We can help you answer the questions.
Adj Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, LLM, MBA, SJD
Legal Consolidated Barristers & Solicitors
National Australian law firm
Mobile: 0477 796 959
National: 1800 141 612
Email: [email protected]
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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)”.