It is not uncommon for loans to be made within Families. Loans can be made from parents to children, or from children to parents.
Examples we have come across recently include:
- A child lending monies to a parent to buy into Aged Care or a retirement Village;
- A parent lending a child monies to buy into a home.
Sometimes there is uncertainty, down the track, when things don’t work out as planned, as to whether the payment was a gift, or a loan. People’s financial circumstances change, their planning changes, and suddenly what appeared simple and straight forward becomes fraught with confusion and dissension. Was it repayable? When? On what notice? On what terms?
A recent case involved a lady who put $200,000 into a property owned by her daughter, on the assumption she would live there the rest of her life. In time mother and daughter didn’t get on, mum moved out, and would like her money back. Nothing was documented. Was it a gift, a loan, an investment? There are conflicting versions between the parties. A court must now decide.
Another recent example involved two (of four) children lending money to “mum and dad” to move into Aged Care. They asked for the loan to be documented so that there could be no mis-understandings down the track when the estate ultimately needed to be managed. This was prudent and insures there is no confusion when the day arrives to deal with the refund of the Aged Care RAD when the estate needs to be administered.
Another example was parents lending monies to a child to buy a house. The loan was documented to ensure that if the house was sold there was no confusion that the loan was in fact owing and needed to be allowed for. The parents may choose to roll it over to a new property or may (depending on their circumstances at the time) choose to have the loan partially or fully repaid.
Loans to children are particularly problematic. There can be a mind set of “inheritance impatience“ where the feeling is that “it’s coming to me eventually anyway” so there’s no need to repay it. This may place the parents in a difficult position when they need funds for Aged Care, Retirement Living, or health needs.
Loans can bear interest, or not. They can require payments, or not. They can be repaid by a certain date or be “at call” – in other words, there is no set time for repayment, but can be required to be repaid when the need arises.
The bottom line – put loans between family in writing if you want to avoid confusion and dispute down the track.
Sunshine Coast Elder Law are experts in Retirement Villages, Aged Care contracts, and financial dealings between parents and children. Contact them on 1800961622 or visit www.sunshinecoastelderlaw.com.au