We remain open and continue to serve our communities during the COVID-19 pandemic. Click here for more info

Parent to child loan agreements and wealth protection

Commonly asked questions about parent to child loans:

It is important to bear in mind the possibility of your child’s relationship breakdown or bankruptcy. In the context of a relationship breakdown, a failure to document a parent to child loan correctly can have severe consequences for both you and your child. For example, a gift made by you to your child could be viewed as an asset of your child’s relationship, and divided between your child and their spouse or partner.

Federal and state courts can view a parent to child loan as a resource of the child to be taken into account when the court divides the other assets. The particular terms of the loan agreement will affect the likelihood of the court viewing the loan as an asset of the relationship or a financial resource of the child.

If your child receives a loan from you and then becomes bankrupt, then failing to take security over your child’s assets may mean that other creditors get paid before you do.

You should also think about how the loan to your child fits into your overall estate plan. Although loan agreements will usually state that the loan is repayable on death, the following should nevertheless be considered:

  • Will you forgive the debt in your will and compensate your other children accordingly?
  • What will you do if your child passes away before you do, potentially leaving a spouse/partner and/or children who are unable to repay the loan? Having security over your child’s assets would give you the flexibility to recall the loan immediately or at a later date.
  • Similarly, if the loan was invested in your child’s superannuation fund, you may find it hard to obtain repayment unless you have security over your child’s assets, such as real estate.

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

  • Loans should be acknowledged by both your child and their spouse/partner and at least annually the child should make repayments of the principal or pay interest.
  • You should consider taking security over the loan, such as a mortgage over real estate.
  • You should review your estate planning documents to ensure that they put into effect your intentions in relation to the loan.
  • Your executors and attorneys should be alerted to the existence of the loan and your intentions concerning whether the loan is to be forgiven or repaid.
  • You should seek specific taxation advice 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 creating a loan agreement that protects both parties financially.

Our experts

Postcode

News

If a person with a secret second family dies, who inherits their estate?
30 Sep 2021
It’s a classic plot in movies and novels – a man dies, leaving his family to...
Read More
Does marriage or divorce automatically revoke a will?
28 Sep 2021
Did you know if you were to get married and then die soon afterwards, the fact ...
Read More
The reverse mortgage – one of life’s gambles?
23 Sep 2021
With the government encouraging self-funded retirees to tap into their home’s ...
Read More
Can my ex claim part of my lottery winnings?
15 Sep 2021
If a couple separates and one of them wins lotto, can that person be legally ...
Read More
If I cover up a murder, can I inherit from the victim’s estate?
18 Aug 2021
You’d think the law would be clear – if a person is convicted of murdering ...
Read More
Pressure grows to make voluntary euthanasia legal in NSW
12 Aug 2021
Legalising voluntary euthanasia, or voluntary assisted dying, is a hot topic in ...
Read More
Business email compromise scams conning Australians out of millions
04 Aug 2021
According to the Australian Federal Police, more than $79 million has been lost ...
Read More
Family provision claims in NSW – spare us the details and curb your expectations
03 Aug 2021
Each year, Sydney barrister Gregory George writes a summary of decisions ...
Read More
The vital importance of a business exit strategy
20 Jul 2021
We are often asked by clients when is the right time to start planning their ...
Read More
When the second wife beats the kids to the inheritance
15 Jul 2021
A classic conflict scenario over a deceased estate is when the second wife ...
Read More
How to contest a Power of Attorney or Enduring Guardian in NSW
29 Jun 2021
When you appoint an Enduring Power of Attorney or an Enduring Guardian, you are ...
Read More
Revoking a Power of Attorney or Enduring Guardian in NSW
24 Jun 2021
Sometimes circumstances change and you may find yourself having to consider ...
Read More

Why Stacks

No hidden fees
Nobody likes surprises on their bills, so we take the time to agree with you exactly what our work will cost before we do it (not after!)
Deep expertise
Our lawyers aren’t ‘general practitioners’, they’re experts in their chosen fields of practice (many are Accredited Specialists)
Practical advice not legalese
We provide clear, practical advice, in plain English, so that you can make decisions with confidence
Over 25 local offices
Our local offices are owned and operated by friendly, local professionals, who are proud and active members of the communities they serve
Real client care
Genuine care for clients has been at the core of our practice since the first office was opened by ER Stack on the NSW Mid-North Coast in 1931
Progressive practice
We invest in technology and systems so that our services are always cost effective and clients are in control of their own legal affairs

More about our promises

Get help now

It's easy to get help, just tell us your story and we'll help you understand all your options. If you’d like us to help, we’ll agree exactly the work you'd like us to do up front so that you can be certain about our costs.

Your enquiry is completely confidential.

Complete the form and one of our experts will get back to you within 24 hours.

Reach out

Fill out this form and one of our local law professionals will be in contact

By submitting this form you agree to the terms of our Privacy policy