The issue of financial assistance from parents to adult children is very topical and will continue to be so whilst the price for properties remains out of reach for many young people.

It is very important for parents to get proper legal advice when deciding to help their children purchase a property. Simply providing money to a child to assist with the purchase may mean that the assistance given is regarded as a gift and has the effect of becoming an asset of the child. If this occurs then if the child dies or goes bankrupt or has a divorce, the financial help given will either wholly or in part, be lost by the child or will accrue to another person.

It is wiser to provide that financial assistance by way of a loan and to have the loan properly documented by one of our lawyers. In this way the financial assistance (the loan) remains the asset of the parents and can be required to be repaid at some point in the future. So if the child does die, go through a divorce or become bankrupt, the parent can require the repayment of the loan and so protect that financial assistance from being lost to other people. It is common for the loan documentation to require repayment of some interest but it is not necessary. The documentation can also provide for security for the loan but again that is not necessary either.

Any loan documentation should be properly prepared since it may be the legal basis for recovery of the loan in the future.

The law generally allows recovery of the loan within six years from when the loan was given but this can be extended to twelve years if the loan is documented in a Deed.

Providing for financial assistance by way of a loan to a child may also create the need for the parent to consider whether in their Will they should provide for the loan to be forgiven and brought to an end if the parents die. Issues regarding the repayment of the loan could be discussed and provided for, either in the parents’ Will or even in the loan documentation itself.

The loan documentation should be properly prepared by a lawyer and it should cover all aspects of the financial assistance. If you need advice regarding financial assistance to children, please contact Kerry Kyriakoudes, Peter Bahlmann, Anna Masi or Alexander Beagley of our firm.