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Money that goes around (unrecorded) never comes around

Oct 20

2 min read

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Parents often financially assist their children independent of whether or not the children are in difficult situations. In most circumstances, parents lend monies to their children, without the transaction being formally recorded leaving the parents’ monies unsecured and vulnerable to any future uncertainties that their children may encounter. My experience has time and again proven that parents must independent legal advice (and tax advice) before lending monies to your children to ensure that your monies are secured rather than the repayment remaining uncertain and unsecured.


Recently, my clients instructed me to prepare their Wills. Whilst taking the wife’s and his instructions, they advised me that one of their two children was loaned monies to buy his house as he was not in a position to contribute towards the required deposit amount. Their child verbally promised them to repay the monies in the next five years. My clients and their child had never prepared or executed signed a formal agreement recording their transaction.


I advised my clients to consider the following potential consequences, which they may face in the absence of any formal written loan agreement between them and their child:


(a)   if their child is embroiled in a matrimonial dispute, the Family Court it is highly unlikely to recognise the loan between the child and his/her parents. The monies paid by the parents will be considered a part of the pool of matrimonial assets leaving the parents will no remedy to recover their monies.

(b)  in circumstances where the parent or parents pass away, it is highly likely that your siblings may not agree to the proposed distribution set out in the Will, as the child, who received loan monies, would have received a significantly greater share in the parents’ asset pool than his/her siblings.

(c) should your child subsequently face any financial difficulties, the parents' debt cannot be recovered due to lack of formal agreement in place.

I assisted my clients in preparing and executing:

     (a)  the loan agreement with their child; and

     (b) their respective Wills


The chart below sets out four potential scenarios that parents may encounter in circumstances where they have lent monies to children without recording the transaction by way of a formal loan agreement.


Ensure your monies have found their way back before they have found their way out of your accounts!


Please contact me should you need any assistance in preparing loan agreements between family members. 


Please note that any information included in this article is general information only and does not constitute legal advice. Please contact us to discuss your particular circumstances.



Oct 20

2 min read

0

3

0

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