Planning on giving money to your kids?

Are you planning on giving or lending money to your children?

Have you ever considered what would happen to those funds if your son or daughter broke up with their spouse or current partner? What if they got into financial difficulty?

Most parents are happy to assist their children and their family financially and even offer to do so, but steps need to be taken at the time of making the advance to ensure that it can be recovered in the event of a family breakdown or if the recipient dies or becomes a bankrupt.

If you simply “gave” the money to one or both of them, it would be an asset of the relationship and on separation or divorce, be able to be split between them under the Family Law Act if they were married or the Property (Relationships) Act if they were not. It does not come back to you.

If they died, their will comes into play and the benefit of those funds will flow to their nominated beneficiaries. If they become a bankrupt, their trustee in bankruptcy will have use of those funds to pay creditors.

In order to protect your money from any of these types of events, you need to ensure the advance is documented as a “loan” and not as a gift (the law presumes it to be a gift due to the parent/child relationship unless there is evidence – a loan agreement – to rebut that presumption).

Ideally, there would also be some form of security for the loan also (such as a mortgage or caveat on title to property).

By having such protection, the money remains available for use by you and your family and can be recovered by you if an unfortunate situation occurs. You can then lend it again later if required.

For more information, please call Michael Tzirtzilakis , Head of Commercial Law at Bell Partners Legal, on (02) 9249 7600 or email mtzirtzilakis@bellpartnerslegal.com

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