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Gifts from family members – make sure all parties are protected
A young couple were building their first home and realised it was important to put their Wills in place.
Upon discussing their circumstances with their lawyer, it transpired that the young woman had been given a loan by her grandmother to help towards the deposit for the couple’s newly purchased land.
There was an understanding that the couple would pay this money back to the grandmother once they had paid off their mortgage. If the money was not repaid prior to the grandmother passing, then the understanding was that that money would form part of the young woman’s inheritance.
This arrangement appeared to be a loan that could possibly turn into an inheritance, from the grandmother’s perspective.
However from a legal perspective this loan had the potential to be an inheritance that becomes relationship property.
It became apparent that the loan from the grandmother was recorded in a very simple agreement, however there were no details recording the method of repayment, particularly in the event that the young couple’s relationship comes to an end.
The young woman was advised by her lawyer that should the couple’s relationship come to an end, the young woman’s “inheritance” (or part of it) would likely have been mingled with relationship property as it was used to purchase a home for the couple.
In this situation, the couple should have considered fully what could happen, and what they each would want in each possible scenario, and recorded the method of repayment in the documentation they had with the grandmother, and between themselves, along with clauses around what was to happen with the loan if the relationship came to an end, or if one party passed away.
Importantly, the couple should also consider whether their wishes required a Contracting Out Agreement (often called a “pre-nup”) which could record the inheritance as the young woman’s separate property. It is possible that after careful consideration of the options, the couple could decide that they preferred not to preserve the inheritance as separate property.
It is vital that you take legal advice if you are considering giving, or receiving, a loan .... to or from a family member.
Please note that Rainey Collins is not contracted to provide Legal Aid, other than in the Treaty of Waitangi area. We therefore are unable to take on any Civil or Family Legal Aid work. If you require Legal Aid in those areas, you can search the list of Legal Aid lawyers on the Ministry of Justice website.