Economic activity

Gifts and Loans to Family Members – Contracts and Commercial Law

It is not uncommon for people to give gifts or loans to family members, be it money or assets such as property. However, there are some important misconceptions that the lender and borrower should be aware of before giving, lending, borrowing or taking.

What is the difference between gifts and loans to family members?

With a present, ownership of the money or asset rests solely with the recipient. The donated asset or the amount donated does not have to be repaid or returned to the donor.

A ready is a cash advance that is repayable under terms expressed or implied in the arrangement. The loan money normally has to be repaid to the lender, unless an agreement has been reached not to repay the money.

How to Write Family Loan Agreements

Whether you give assets or money to family members, or make loans to family members, you may wonder if you need to document such arrangements.

The answer is always yes. Even if you trust your family member completely, an unforeseen event may occur between you that completely changes the circumstances.

For example, a member of your family gets married or associates with someone who causes the relationship with you to break down, or one party becomes mentally ill or loses mental capacity, and the terms of the agreement are forgotten or misunderstood.

Making sure there is a written agreement between both parties helps protect the arrangement.

The agreement must be documented by a lawyer specializing in commercial law.

Unclear agreements on loans to family members

If a loan agreement is incorrect or unclear, or does not contain the necessary security protections to protect the lender, then in the event of a problem in the future, the document will not suffice.

An example of where the document was not sufficient occurred when a lender to a family member obtained advice from a lawyer who was not an expert in commercial law. A simple agreement was created that essentially acknowledged the loan, but provided no security to the lender if the borrower failed to repay the loan.

There was no file note stored with the acknowledgment document, and so when the family member borrower failed to repay the loan in accordance with the terms of the acknowledgment, the lender had no way of recovering the loan. ‘silver.

The borrower went bankrupt and the lender could not get the money back.

It is important for the lender to be aware of their security options and to know that if a loan is unsecured there is a high risk that it will never be repaid.

Common Misconceptions When Giving Gifts to Family Members

If you are giving gifts to family members, again it is important to obtain commercial law advice and any other relevant advice before the gift is given.

There are various misconceptions about giving gifts to children, including the following four common beliefs.


  1. “The beneficiary family member will not have to pay stamp duty on the transfer of land.”

Unless the parties own a farm and follow strict rules regarding the transfer of the farm by intergenerational transfer, any other transfer of land by gift without monetary consideration requires the buyer to pay stamp duty – now called transfer duty .

Even if you hold land as tenants in common with someone, it’s not as simple as “removing your name from the title”. Removing a person’s name from a title held as tenants in common requires the payment of transfer duty by the person taking the balance of the land.


  1. “The beneficiary, a family member, will hold the property in trust for me, until I need it again, so that I can still receive my pension. »

Invariably, as a parent ages, they consider their financial viability options. Often, parents wonder how they can continue to receive the pension. This may involve the idea that they should transfer their land to their children, so that their assets seem smaller and therefore they receive a higher pension.

This often creates problems, including unclear agreements between parent and child and possible Commonwealth fraud. It may even leave the parent in a worse situation than if he had kept his land and had not received the support.

Here is an example of how a problem can arise when parents decide to transfer land to their child without monetary compensation.

The parents see a lawyer to make the transfer. They sign a letter stating that they agree not to take any residual profit from the land after the transfer. Years later, the child sells the property and the parents demand the proceeds of the sale, claiming the transfer was based solely on the fact that the land was held in trust for the parents.

The child says no, it was not a trust, and you signed the letter stating that you agreed not to derive any residual benefit from the land after the transfer. The parents then claim that it was a private verbal agreement made before the transfer, whereby the child would hold the land in trust for the parents.

As you can imagine, it is impossible for a court to know who is telling the truth, but the court will decide based on the evidence available and how the parties testify on the witness stand.

Ultimately, if this situation arises, you put yourself in a position where a judge must decide. He or she might not make the decision you want.


  1. “The beneficiary family member will take care of me when I am older if I give him this money now, or if I give him this gift now.”

This is another common misconception. Experience shows that events do not necessarily unfold in this way.

If one of the parties has the wrong idea of ​​the nature of the arrangement, it is likely that in the future one of the parties will be harmed.

One option to mitigate this risk is to have other documents also created at the time of the gift or loan documentation, such as a permanent guardianship document, power of attorney and possibly also a lifestyle or grandma’s agreement.

This should clearly explain what the parent’s expectations of the child are as the parent grows and document the child’s agreement to those expectations, as well as some safety clauses.

What if the child does not do these things or does not meet these expectations? Can the parent request reimbursement of the child’s money to pay a care home deposit?

All of these factors must be taken into account to avoid a terrible falling out in the future. You may think it’s not possible, but it may not be your fault or that of the child or family member.

Instead, it could be an unexpected life event that occurs, such as bankruptcy, divorce, new marriage, or mental illness.


  1. “No one will dispute the gift after my death.”

If your gift or loan is undocumented and you die, how will the executors know what the true arrangement is?

There may be a verbal agreement between a family member lender and a family member borrower that money has been loaned and repaid, with the understanding that on the death of the lender, the remainder of the loan must be cancelled.

If such an agreement is not documented in a will or otherwise, the executor will assume that the remainder of the loan had to be repaid, since there will be proof of repayment of the money by the borrower.

Importance of seeking legal advice before offering gifts or loans to family

It is so important to discuss your entire situation with your attorney. Your lawyer will need to know important information about you to advise you properly in all situations.

It may not be possible to cover all possible sources of future disagreement in one document, but including a mediation or alternative dispute resolution clause in the agreement will help avoid legal proceedings and may lead to a faster resolution by negotiated settlement in the event of a dispute.

Anneka Frayne
Commercial contracts
Stacks Law Firm

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.