Parents are increasingly lending or gifting their children money, especially with this generation finding it difficult to get on the property ladder. However, if the details and circumstances of such a loan or gift are not recorded this can cause issues in the future.
In a recent case, Mary Farrell forwarded her son Ray some money to assist with his property purchase. Mrs Farrell’s relationship with her daughter in law broke down, following her son’s death. Mrs Farrell claimed the money she advanced to her son, was a loan and not a gift and therefore it should be repaid by his estate and to pass to his widow. Ray left a Will, but made no reference to this money.
The Court did not accept her claim as she could not provide any documentary evidence that this was a loan. The Court held that there is a presumption, that payment of money from a parent to a child is deemed a gift, unless there is evidence to the contrary. Mrs Farrell lost her claim and was issued with costs order.
Mrs Farrell was very disappointed with the outcome, as she claimed that the money she had loaned her son was from her savings which was ear marked for her pension fund.
When families are loaning money, unfortunately a lot of factors are not considered. What happens if the parent dies; will the loan be discharged or owed to their estate? Or in Mary Farrell’s case, if the child dies, is this loan to be repaid by their child’s estate?
Equally when parents are gifting to their child, they should understand what tax implications it has on their estate and what is deemed to be a gift.
It is imperative whether gifting or loaning money, that all parties involved record their intentions in writing. It is strongly recommended that all parties seek independent advice on the consequences of entering into a loan or making any gifts in order to consider all eventualities and help avoid disputes in the future.
If you have any questions or queries regarding the topic discussed above please contact our Private Client department.