Clients regularly seek our advice regarding money given to family members or friends. Often, the gift happened many years ago and relationships may have deteriorated somewhat in that time. In our experience, the arrangements are rarely documented.
When money is “given” to another, it can be for many different reasons, including:
- as a gift
- as a loan
- to purchase something.
The Common Law provides that a financial transaction between family members is regarded as a “gift” unless there is proof to the contrary, for example, by the existence of a loan agreement. While verbal evidence of such an agreement is permitted at Court, it is very difficult to prove what was said many years before at the time of the transfer of money and what the terms of the deal were to be.
If the money was given as a loan, it should be properly recorded in writing and should be signed and dated by both parties. It should clearly state that the money is to be regarded as a loan and the agreement should also record things such as the repayment plan and any interest being charged. It is simple and inexpensive to have this done properly but saves considerable argument if the parties later disagree. It reminds the parties of what the agreement was and takes doubt out of the equation.
If the money was to be used to purchase something such as a property, this must also be documented. In addition, stamp duty is to be paid and a Transfer should be registered with the government. The law states that any dealings which deal with real estate must be in writing in order to be enforceable.
You should obtain legal advice from an experienced solicitor to ensure such transactions are properly documented. The savings in money, time and stress will be immeasurable if something goes wrong in the future.