Parent to child loans

Commonly asked Questions about Parent to Child Loans:

Where there is a risk of the child going bankrupt or suffering a relationship breakdown, or where the parent requires flexibility in the case of either the parent or child passing away, the following options should be considered:

  • Loans should be acknowledged by both the child and their spouse/partner (preferably the child and their spouse/partner should enter into a Binding Financial Agreement or prenuptial agreement) and at least annually the child should make repayments of the principal or pay interest.
  • The parent should consider taking security over the loan, such as a mortgage over real estate.
  • The parent should review their estate planning documents to ensure that they put into effect their intentions in relation to the loan.
  • The parent’s executors and attorneys should be alerted to the existence of the loan and their intentions concerning whether the loan is to be forgiven or repaid.
  • Specific taxation advice should be sought before entering into a loan agreement.

If there is a dispute in the future, it will generally be the parent who has to prove that the loan was not a gift. An appropriately drafted loan agreement can help resolve disputes and help to prevent them from occurring. Your Stacks Lawyer will be able to assist you with putting in place a loan agreement that protects both parties financially.

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