Help your child get ahead. Protect your right to get the money back.
Includes:
Your daughter needs a home deposit. Your son needs money for his business. You want to help. But what happens if your child divorces, goes bankrupt or refuses to repay you?
A gift gives away your money. A loan keeps your right to repayment.
Legal Consolidated’s Parent to Child Loan Agreement puts that obligation in writing. Get the borrowers to sign before you transfer the money. Help your child without giving away your rights.
You lend your daughter, Joanne, $300,000 to buy a home with her husband, Ken. Years later, they separate. Ken says you gave them the money.
You tell the Family Court: “I intended it to be a loan.” Your intention alone does not prove that they agreed to repay you.
A genuine loan, backed by a legally prepared Legal Consolidated Loan Agreement, gives you a fighting chance to keep your money out of their property settlement. Produce the signed agreement, the bank transfer records and evidence showing that they treated the money as a debt.
You worked hard for that money. Give yourself the evidence to fight for it.
Joanne and Ken buy the home together. You provide the deposit. But only Joanne signs your Loan Agreement.
Ken has not promised to repay you. If Joanne has no money, you face a problem.
Consider making both Joanne and Ken borrowers. Legal Consolidated’s Loan Agreement makes multiple borrowers jointly and severally liable. Each owes the whole debt under the agreement — not merely half.
Settle who borrows before you advance the money. Do not wait until the relationship breaks down to ask for another signature.
Your son’s business fails. His trustee-in-bankruptcy takes control of his assets. You say your son owes you $200,000.
Where is the agreement? When did you lend the money? What did your son promise? Did he make repayments?
Legal Consolidated’s Loan Agreement records the debt and your contractual rights. Keep the signed agreement with the bank records and correspondence. Give yourself evidence to support your claim as a creditor.
For additional protection, discuss security over the borrower’s assets with your property or securities lawyer. Signing the Loan Agreement does not itself register a mortgage or put you ahead of secured creditors.
Read our family asset protection strategies before advancing the money.
Dad runs the business. Mum holds the family savings. Your family also holds investments through a clean-skin Family Trust.
Who actually lends the money?
If Mum advances her savings, name Mum as lender. If the Family Trust advances the money, name its trustee in that capacity. The person moving the money and the lender named in the agreement must match.
This follows the same man of straw and woman of substance strategy: separate the person facing business risks from the person or structure holding the family wealth.
Keep the documents controlling that wealth current. Our Family Trust Update addresses the Appointor, backup Appointors, trustee and trust rules.
Your child welcomes the money but objects to signing. “We are family. Why do we need lawyers?”
Because the agreement must do its job when things go wrong. Your child’s former partner, creditors or executor may dispute the arrangement years later.
Legal Consolidated prepares a legally binding agreement. It sets out repayment obligations and what happens on default. It does more than record that you love your child and want to help.
Your child chooses whether to accept the loan. You choose whether to advance your money.
In Rowntree v Commissioner of Taxation [2018] FCA 182, an experienced lawyer argued that payments from companies he controlled were loans. He lacked records made at the time to support much of the arrangement. His appeal failed.
This was a company-tax case. The lesson for parents is straightforward: calling money a loan does not prove the terms.
Legal Consolidated prepares your finished Loan Agreement from your answers and provides it with our law firm’s cover letter and instructions. Sign before lending. Keep the records. Follow the agreement.
You may not need the money today. Later, you may need it for retirement, medical expenses or aged care.
Choose repayment on demand, instalments or a fixed repayment date. Select whether interest applies. Legal Consolidated’s Loan Agreement brings your choices together with the borrower’s obligations and default provisions.
You do not have to give away your right to repayment to help your child.
The bank asks you to confirm that the deposit is a gift. But you expect your child to repay it.
Do not tell the bank one thing and sign a family Loan Agreement saying another. Resolve the bank’s requirements before transferring the money.
If you want security over the home, ask your property lawyer about the bank’s mortgage, any required consent and the registration of your security. Keep the loan, the bank documents and the ownership arrangements consistent.
Your death does not automatically cancel the debt. Your executor needs the agreement, the current balance and the repayment records.
Keep them with your Will and estate planning documents. Decide how your Will should deal with the loan. Should your executor collect it, forgive it or account for it when dividing the estate?
One child may owe you money while another owes nothing. Clear instructions help your executor carry out your wishes without leaving the children to argue.
Your Loan Agreement protects your position while you are alive. Your Will determines how you leave your wealth after death.
Consider Bankruptcy Trusts and Divorce Protection Trusts in your Will. For a child who needs extra support, work through our free training on protecting vulnerable children.
Your child’s superannuation needs attention too. Our Reversionary Pension Kit explains pension succession for eligible dependants. Discuss it with your financial planner and accountant.
Build a family protection plan that works during your life and after your death.
Find the bank transfers, emails and messages showing what you agreed. Do not backdate an agreement or turn a gift into a supposed loan after trouble starts.
Consider our Recognition of Loan Deed when reviewing an existing debt. Ask your lawyer to check the time limits for enforcing it.
If you later decide to release the debt, consider a Deed of Debt Forgiveness. If you intend a gift from the outset, use a Deed of Gift.
More than 4,600 accountants, financial planners and lawyers build legal documents on our website.
Start for free. Answer the questions about the lender, borrowers, loan terms and guarantors. Read the hints and watch the videos. Save your answers and return later.
Telephone, email or use Chat to a lawyer for help answering the building questions. Once the required sections show green ticks, Lock and Build appears.
Get the agreement signed before you lend the money.
