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In the current property market, it is not unusual for parents or family members to want to give their loved ones a helping hand when purchasing property. But have you thought about what this really involves, and what is at stake?

The difference between gifting or loaning money may not seem like an important distinction, however it can have a significant impact on you or your loved one’s financial position down the track.

A Gift

In the absence of evidence showing otherwise, the law presumes that transfers of money from parents to their children are gifts which cannot be recovered.

In this circumstance, if you assist your child and their partner with their first home purchase and their relationship ends later down the track, there is no guarantee you will get your contribution back. In fact, potentially the ex-partner is entitled to 50% of your contribution, even if you only intended on the gift to benefit your child.

A Loan

The law treats contributions to other family members, friends or colleagues differently. In these circumstances, the law presumes that the person advancing the money intended to retain a beneficial interest in the property that is reflective of their contribution.

This is known as the presumption of resulting trust. The presumption can be rebutted, but the onus falls on the recipient of the contribution to show that a gift was intended not a loan. For example, this could be by way of a signed Deed of Gift.

In this instance, if you loan your loved one money for the purpose of purchasing a home alongside their partner and they later break up, you will receive the contributed money back, perhaps with interest. You can then choose to re-loan that money to your loved one for another purchase one they have finalised their separation if you choose to do so. This arrangement is best recorded in a loan agreement or a deed of acknowledgement of debt.

If you’re thinking about making a financial contribution to a family member or friend, it is important to seek legal advice before advancing funds to ensure you are aware of all of your options, and how it could impact you. No matter what kind of contribution you want to make, it’s best practice to have supporting documents drafted to protect yourself, and your loved ones.

If you are wanting advice on whether you will be making a gift or a loan or what your best option is, please contact us and we would be more than happy to help you.