The Bank of Mum and Dad: Loan it or lose it

One question we are advising clients on more frequently these days revolves around them wanting to help their children financially, but at the same time protect that money to ensure it stays in the family. Some interesting figures from 2017 pointed to family members, essentially the Bank of Mum and Dad, being the fifth largest source of lending in Australia behind the big four banks, at around $65 billion.

Having the right strategy can make a big difference if something goes wrong and will play a significant part in determining whether that money will be lost, or whether it can be protected and recovered.

What are the risks?
Two of the more common concerns we see are:

  1. what happens if there is a relationship breakdown?
  2. what happens if the business plans don’t work out?

Keeping it in the family
Giving money to children is a simple and easy way to help them out. However, once the money has been given, it is gone and there is no ability to get it back. This can cause many problems, including:

  1. creditors having access to those funds in the event of bankruptcy
  2. that gift being included in the property pool in the event of a relationship breakdown (which includes both marriage breakdown and de facto relationship breakdown)
  3. not being able to call the money back if it is needed in the future to fund retirement plans or future accommodation needs

Something more…
Putting in place a loan agreement can assist in avoiding or reducing many of the issues with gifts. The key point is that the loan must really be a loan and not a gift. Ideally, a loan arrangement would include:

  1. a formal loan agreement document
  2. repayments being made on a regular basis
  3. security being taken over property
  4. an acknowledgement from the child’s partner that the loan is a loan, and not a gift

Other considerations?
There are other practical matters to consider regarding loan arrangements, including:

  1. the potential impact the loan may have on a child’s ability to service an existing loan or obtain finance
  2. if any adjustments are required to your Wills to take the loan into account (this can be especially important if only one child is receiving the benefit of a loan)

The takeaway
Being able to help family members can be a great way to see them get into the property market or start their own business. Making sure you put the right arrangement in place is key. Putting in place a loan arrangement which requires security and repayments gives better protection. If you don’t loan it, you run the risk of losing it.

If you would like to discuss the financial assistance options available to you and/or your loved ones, please contact Calibre Private Wealth Advisers

If you have any questions/thoughts in relation to this article or would like more information, please click here to send us a brief email.


This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax/or legal advice prior to acting on this information. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product. The material contained in this document is based on information received in good faith from sources within the market, and on our understanding of legislation and Government press releases at the date of publication, which are believed to be reliable and accurate. Opinions constitute our judgment at the time of issue and are subject to change. Neither, the Licensee or any of the Oreana Group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Gordon Thoms and David Conte of Calibre Private Wealth Advisers are Authorised Representatives of Oreana Financial Services Limited ABN 91 607 515 122, an Australian Financial Services Licensee, Registered office at Level 7, 484 St Kilda Road, Melbourne, VIC 3004. This site is designed for Australian residents only. Nothing on this website is an offer or a solicitation of an offer to acquire any products or services, by any person or entity outside of Australia.

Liked this article? Share it!