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What is "Bank of Mum and Dad"? Parents providing financial assistance for their adult children's property purchases, either as gifts or loans.
Gift vs loan matters for: Stamp duty, tax implications, asset protection, estate distribution, and family member expectations.
Documentation protects: Everyone's interests when circumstances change - relationship breakdown, multiple children's expectations, asset protection needs.
When to document: Significant amounts, multiple children involved, asset protection considerations, or when clarity about estate intentions matters.
Key takeaway: The decision about documentation isn't about trust - it's about preventing misunderstandings when circumstances change in ways nobody anticipated at the time.
Clarify whether you're gifting or lending before money changes hands - this distinction affects stamp duty, tax treatment, and family expectations. If lending to one child, consider how this affects other children and your broader estate plan. Document your intentions while you're able to explain them, particularly if asset protection matters to you. Discuss your plans with all children to prevent misunderstandings later. Get professional advice if the amount is significant, you have multiple children, or there's any complexity around property ownership structures.
Parents helping adult children with property purchases has become common across Australia. The decision itself is usually straightforward - you want to help. The complexity lies in how you structure that help and whether you document it formally.
Most parents I speak with start from a place of trust. They're not worried about their children repaying them, and formal documentation can feel like introducing distrust into a family relationship. That's entirely understandable. The question isn't really about trust, though - it's about what happens when circumstances change in ways nobody anticipated.
Marriage breakdowns, other children's expectations, estate planning complications, or parents needing asset protection later in life can all create situations where informal family lending arrangements become problematic. Clear documentation doesn't reflect distrust - it provides clarity when you're no longer there to explain what you intended.
Helping children buy property feels simple when everyone's relationships are stable. You trust your children, they trust their partners, nobody anticipates relationship changes or family disputes. Documentation can feel like you're planning for problems nobody expects.
The challenge is that circumstances genuinely do change over extended timeframes. A contribution to a deposit today might need to be considered years later when asset protection becomes relevant, or decades later when your estate is distributed. Your child's relationship might end. You might have other children who assumed that contribution was a gift, or who received less help themselves.
These situations aren't about people being unreasonable - they're about different genuine interpretations of informal arrangements made years earlier. When you provided money for a deposit, did you mean that as a gift, or a loan to be repaid when the property sold? Your intention might have been clear to you at the time, but without documentation, different people often remember different understandings.
If you have multiple children, the question of fairness becomes relevant. If you help one child, should that be offset against their inheritance? What if another child never needed help? What if market timing meant one child got help buying at lower prices? These questions have different answers for different families, but they need clear answers rather than assumptions.
There are also tax implications that differ depending on whether you're gifting or lending. The stamp duty treatment can vary. Capital gains tax might apply in certain circumstances. Getting the structure wrong can have expensive consequences that proper planning would avoid.
The first decision is whether you're gifting money or lending it. This isn't just semantics - the distinction creates different legal positions for everyone involved.
A genuine gift means you're providing money with no expectation of repayment. Once given, it belongs to your child and becomes part of their assets. This has implications for how it's treated in property settlements if relationships break down, and how it affects your estate planning.
A family loan means you expect repayment, even if you're flexible about timing or don't charge interest. The loan remains your asset, and your child owes you a debt. This creates different tax treatment, different stamp duty implications in some circumstances, and a different legal position if your child's relationship ends.
The choice between gift and loan affects:
Each family's situation is different, and what makes sense depends on your broader financial position, estate planning objectives, and family dynamics. The key is understanding the implications before you structure the arrangement, not discovering them years later when circumstances change.
One reason parents choose to document and secure family loans is asset protection - protecting the funds if circumstances change unexpectedly.
If you provide money to help your child buy property and their relationship later breaks down, an undocumented arrangement often gets treated as a gift during property settlement. The funds become part of the asset pool to be divided. A properly documented and secured loan creates a different legal position.
Similarly, if your child faces financial difficulties, creditor claims, or business problems, properly secured loans have different treatment than gifts or undocumented arrangements. The level of protection depends on how the arrangement is structured and whether security has been registered appropriately.
Asset protection isn't about expecting problems - it's about understanding that circumstances change over the 20-30 year timeframe that property ownership typically involves. Young families starting out can face unexpected challenges, relationship changes, or financial setbacks. Proper documentation and security can protect everyone's interests if these situations arise.
The sophistication of documentation and security you need depends on the amounts involved, your asset protection priorities, and your child's circumstances. Some families need simple loan confirmation. Others benefit from formal security registration. The right approach depends on what you're trying to protect against.
Even families with strong trust and good relationships benefit from clear documentation in certain circumstances.
Documentation becomes important when:
What proper documentation achieves:
Clear documentation doesn't create family conflict - it prevents it. The document records what you actually intended while you're around to explain it. Years later, when memories differ or circumstances have changed, everyone knows what was agreed.
Good documentation also addresses asset protection, provides clarity about repayment expectations if relevant, and integrates with your estate planning. If you're lending rather than gifting, proper documentation can include security registration when amounts and circumstances warrant it.
The sophistication of documentation should match the complexity of your situation and what you're trying to achieve. Some families need simple gift confirmations. Others need formal loan agreements with registered security. The right approach depends on your objectives.
You're uncertain whether to treat this as a gift or loan, and what the implications are for each approach. You're not sure whether documentation creates value or just adds cost and complexity. You're worried about how to address fairness if you have other children, or what happens if your child's relationship breaks down years from now.
You don't know whether simple documentation is enough or whether you need formal security registration. You're concerned about getting the tax treatment wrong, or discovering later that stamp duty could have been handled differently. You want to help your child, but you're not sure how to do that in a way that protects everyone's interests and doesn't create problems you can't undo.
The amount is significant enough that getting it wrong matters, but you're not sure what "getting it right" actually looks like for your family's situation.
Consider parents who provide $150,000 to help their daughter buy her first home. They genuinely want to help and trust their daughter completely. They have two other children.
Without documentation, the arrangement remains ambiguous. Was it a gift or a loan? The parents might remember they expected it back "eventually" or "if the property sells." The daughter might have understood it as a gift to help her get started. Her partner might assume it's a joint asset since it went into a jointly-owned property.
Ten years later when the daughter's marriage ends, different parties have different views about whether the $150,000 should be treated as a gift (split with her ex-partner) or a loan to be repaid. The parents' intention was clear to them at the time, but without documentation, everyone's interpretations differ. Without proper documentation and security, even if everyone agrees it was a loan, the parents have limited practical recourse.
Fifteen years later when the parents' estate is distributed, the other children discover their sister received $150,000. Should that be offset against her inheritance? The parents intended to address this, but the documentation doesn't exist to clarify their intentions.
With proper documentation, these ambiguities don't arise. The arrangement's character is clear - whether gift or loan. If it's a loan, whether security has been registered to protect the funds. How it integrates with estate planning. Everyone understands what was intended, and there's no room for different interpretations when circumstances change.
This isn't about creating complex legal structures. It's about recording your intentions clearly enough that they're still understood decades later.
You understand whether a gift or loan structure achieves what you want for your situation. You know what documentation approach matches your needs - whether that's simple confirmation, structured loan agreement, or formal security registration.
You have clarity about how the arrangement integrates with your estate plan and addresses fairness between children. The tax and stamp duty implications have been considered for your specific circumstances. If asset protection matters to you, you know whether security registration makes sense and it's been handled appropriately.
If documentation makes sense for your situation, you have arrangements that record your intentions clearly enough that they'll still be understood decades later when you're not there to explain what you meant. You're not guessing about what happens if your child's relationship changes or how this affects your other children - you've addressed these questions while you're able to explain your thinking.
Most importantly, you've made decisions with full understanding of the implications, not discovered them years later when circumstances have changed and options are limited.
When you're considering lending or gifting money to family for property, I help clarify what approach actually achieves what you want. This includes understanding the stamp duty and tax implications of different structures, asset protection considerations, and how the arrangement integrates with your estate plan.
The work typically involves understanding your situation and objectives, explaining the practical differences between gift and loan structures for your specific circumstances, and identifying what documentation approach matches your needs - whether that's simple gift confirmation, structured loan agreement, or formal security registration.
If documentation makes sense, I prepare arrangements that achieve what you actually want - clarity about intentions, appropriate asset protection if that matters to you, and integration with your estate plan. The documentation reflects your intentions in terms that will still make sense decades later when you're not there to explain what you meant.
Where amounts are substantial or asset protection is a priority, I advise on whether formal security makes sense and handle that registration process. The goal is ensuring the arrangement provides the protection you want while maintaining the family relationships that matter.
A consultation clarifies the investment required for your specific situation. The value is long-term clarity that prevents family disputes or misunderstandings later, and confidence that you've structured the arrangement to achieve your objectives.
Get advice before providing funds if:
Professional guidance helps with:
Most parents don't charge interest on family loans. Whether you should charge interest depends on your tax situation and what you're trying to achieve. Charging interest can affect how the loan is treated in property settlements if your child's relationship breaks down. The more fundamental question is whether to structure it as a loan at all, rather than what interest rate makes sense.
Not necessarily. How you address this depends on your estate planning approach and what you want to achieve for fairness between children. There are several ways to structure arrangements when helping one child but not others, each with different implications for your estate. The key is being clear about your intentions rather than leaving fairness questions to be debated later.
This depends on how the arrangement is structured and documented. The legal position differs significantly between informal arrangements, properly documented loans, and secured loans. Property settlement laws have specific rules about how family assistance is treated, but your rights depend heavily on whether you've documented your intentions appropriately and whether you've registered security.
Yes. Secured and unsecured loans can be treated differently in various contexts including property settlements and asset protection scenarios. Whether security registration makes sense for your situation depends on the amounts involved, your priorities, and your child's circumstances.
Your ability to change the arrangement depends on how it's documented initially. Some structures provide flexibility to modify terms or forgive loans later, while others lock in specific arrangements. If you might want flexibility as circumstances change, structure the arrangement to preserve your options rather than discovering later that you can't make changes you'd like to make.
