Gifts Made To Children
Mum and dad bank is one of the largest residential lending institutions in NZ when it comes to providing and or securing finance for residential property for adult children. We live in a day and age where buying a home has become an unreachable dream for many.
Paying a mortgage is challenging in its own right let alone saving up for a deposit with the current cost of living crisis. Mum and dad have been known to step in by making an interest free loan for the value of the deposit to adult children to enable them to step on the property ladder.
In the majority of the cases banks require the loan to be gifted. To satisfy the bank Mum and dad sign a deed of gift, yet the understanding at times can be that the amount is still a loan.
If a few years later the daughter and her husband separate, the intention of daughter and her parents is to deduct the value of the loan from the value of the equity in the property and other relationship assets. However, the daughter’s husband might make a claim that this was a gift as opposed to a loan and therefore should be included as part of the relationship property.
For an advance to be a gift, the donor must fully intend as such. Family arrangements are often informal and without a clear or settled plan. In circumstances where property is transferred from parents to children, there is the presumption at law that the transfer is a gift (due to a moral duty to provide).
There have been a few cases dealing with this very issue as to whether the payment is an advance or a gift. It is always best if documentary evidence exists to support the gift or a loan.
Whilst the lack of documentary evidence does not in itself mean that the advance is a gift, as was evident in Zhang and Li v Li, to prevent issues from arising down the track, it is best that payments are documented either as a gift or a loan, depending on what the intention of the parties were at the time the advance was made.
December 2023
