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More Australian parents are lending money to their children than ever before. Whether it's helping with a first home deposit, covering a business start-up, or bridging a financial gap, the instinct to help is completely understandable. But without the right structure in place, that generosity can create serious financial and legal exposure — for you and for your child.
At R J Sanderson, we work with families navigating these arrangements every day across our taxation, estate planning, and wealth management services. What we see consistently is this: the parents who get into trouble aren't the ones who lent too much. They're the ones who didn't document it properly.
Here's what every parent-lender needs to know.
There was a time when Mum and Dad could hand over money with a handshake and a mutual understanding. That approach carries far too much risk today. Rising divorce rates, blended families, and the financial complexities of modern life mean informal arrangements leave parents exposed in ways they rarely anticipate.
The consequences of getting it wrong include funds lost to a child's former spouse in a relationship breakdown, exposure in the event of a legal dispute or insolvency, uneven distribution of your estate, and loan disputes that can fracture families long after you're gone.
If the arrangement isn't documented as a formal loan, there's a strong chance it will be treated as a gift — and once it's a gift, you have very little standing to recover it.
Wherever possible, the loan should be advanced to both your child and their partner. This matters because the funds are almost always applied to a shared asset — typically the family home — and a joint borrower structure reflects that reality. A loan made to your child alone is far more vulnerable to being characterised as a parental contribution rather than a genuine shared liability.
Before any funds are advanced, review how the property is owned and consider whether guarantees or indemnities are needed where financial capacity differs between borrowers.
Courts look at substance, not labels. An arrangement that's called a loan but carries no interest, requires no repayment, and isn't reflected in your estate planning is unlikely to hold up as one under scrutiny.
Consistency is everything — across your documentation, your conduct, your tax reporting, and your estate planning. Periodic loan statements or written acknowledgements strengthen your position considerably. And informality is rarely something you can remedy after a relationship breaks down.
Our taxation team can help ensure your loan arrangement is treated consistently for tax purposes from the outset.
A properly drafted loan agreement should address the principal amount, interest terms, repayment mechanics, default provisions, and enforcement rights. Critically, it should also evolve as circumstances change — a static document that no longer reflects reality offers limited protection.
Template agreements are rarely sufficient for family arrangements. Courts discount agreements that aren't reflected in actual behaviour, so the documentation and the conduct need to align. We recommend engaging a solicitor experienced in family and estate matters to prepare or review your loan agreement.
Taking security over the loan materially strengthens its enforceability. As a general rule, where parents are providing the full funds, a registered mortgage is recommended. A caveat — which is a notice on title rather than a form of security — is typically used where a bank holds the primary mortgage position.
Secured loans carry significantly more weight in family law proceedings and provide an additional layer of protection against insolvency and third-party claims. Priority position should also be considered if refinancing is likely down the track.
Interest on a family loan can be commercial or nominal, payable or capitalised — but whatever structure you choose, it needs to be applied consistently. Any interest you receive as the lender is assessable income and must be declared in your tax return.
Nil-interest loans require careful justification and consistent treatment across all documentation. Where there's inconsistency between the legal terms, the tax reporting, and the actual conduct of the arrangement, it undermines the credibility of the loan itself.
Our taxation team regularly assists clients in structuring family loan arrangements in a way that is compliant, defensible, and tax-efficient.
How you lend — personally, through a family trust, or via another structure — has significant implications for your estate planning and asset protection strategy.
Loans made personally form part of your estate and can be factored into estate claims. They need to be addressed expressly in your will — whether they're forgiven, equalised against other assets, or passed on as enforceable debts. Loans held within a family trust sit outside your will entirely, raising separate questions about who controls the trust and how the loan is treated on your death or incapacity.
The lending vehicle should align with your broader asset protection objectives. Our estate planning team can help you work through the right structure for your circumstances.
Open-ended loans invite uncertainty and dispute. A defined loan term or maturity date — paired with clear trigger events — significantly strengthens the arrangement's enforceability and gives you meaningful control if things go wrong.
Common trigger events include the sale of the property, a relationship breakdown, death, or insolvency. Enforcement rights matter even if you never intend to use them — their presence alone changes how the arrangement is treated by courts and third parties.
A Mum and Dad loan should never exist in isolation from your will and succession strategy. How the loan is treated on your death — whether it's forgiven, equalised against your estate, or passed on as an enforceable asset — needs to be addressed expressly.
Where you've made unequal advances to different children, documenting that clearly in your will is essential to reducing dispute risk. Our estate planning team works with clients to ensure their loan arrangements and succession strategies are aligned, not working against each other.
In appropriate cases, making a Binding Financial Agreement (BFA) a precondition of the loan materially reduces uncertainty. A BFA clarifies how the loan is treated if a relationship ends, and early structuring consistently delivers better outcomes than trying to establish protections retrospectively.
Guarantees, indemnities, and insurance linked to the loan exposure can further strengthen your position. A Mum and Dad loan is one piece of a broader risk management strategy — not a standalone solution.
The most consistent difference we see between arrangements that hold up and those that don't comes down to one thing: whether the right advice was sought before the money changed hands.
Legal, accounting, and financial advice should be coordinated from the outset. Note that solicitors acting in these arrangements cannot ordinarily act for both parents and children — that boundary exists to protect everyone involved.
At RJS, our taxation, estate planning, and wealth management teams work together to help families structure these arrangements correctly. Where legal documentation is required, we'll refer you to a trusted legal partner with the right expertise.
A formal, well-documented, and secured loan is the strongest protection available when helping your children financially. But it's only effective when it's part of a wider strategy — one that accounts for your tax position, your estate plan, and the realities of modern family life.
If you're considering a financial arrangement with your children, or you have one in place and want to review it, our team is here to help.
This article is published by R J Sanderson and Associates Pty Ltd ABN 71 060 299 783. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.