As real estate prices continue to climb, informal agreements with the bank of Mum and Dad have become a key source of finance for many young people seeking to buy their first home. This can present some legal challenges though, especially where the nature of the agreement is in dispute: was it a loan requiring repayment or an unconditional gift?
The case of Mereniuk v Wilks sheds important light on the court’s current position regarding payments made by the bank of Mum and Dad, especially regarding its status as a gift or loan.
Facts
Mr and Mrs Mereniuk gave their daughter, Louise, and then son-in-law, ‘Wilks’, a series of 3 loans across 13 years to buy and renovate homes for their growing family to live in. Over the years, these loans were partially paid back, leaving nearly $180,000 outstanding.
Unfortunately, Louise was diagnosed with cancer in 2017, around the time the final loan was made. Mr and Mrs Mereniuk decided the remainder of the loans could be paid off when the final home purchased by their daughter and then son-in-law was sold. Louise passed away in 2019 with no additional payments being made to pay off the loans since her diagnosis.
Twelve months after Louise’s passing, Mr and Mrs Mereniuk asked Wilks to pay the remainder since the final property was being sold. He refused on multiple grounds, including that the last 2 payments were gifts: not loans needing repayment.
Using the available written evidence the court ruled in favor of Mr and Mrs Mereniuk. It found all 3 agreements were loans which needed to be repaid.
Gifts vs loans and the importance of written evidence
Justice Gibson affirmed the legal presumption that informal payments of money made from parents to children are gifts unless the parents can prove otherwise. This can be difficult to prove where there are no formal written agreements between parents and their children regarding that money.
However, courts may look at the other kinds of written evidence, such as bank statements and other messages or materials, to determine the nature of the agreement. For example, some of the key materials relied on in this case were the spread sheet Mr Mereniuk used to monitor the payments and repayments of the money loaned and letters he had sent to his daughter and son-in-law regarding the repayment of the money, which clearly outlined the nature of the agreement as a loan.
How parents can protect loans made to their children
There are several important lessons that can be learned from this case by parents considering providing loans to their children to purchase property.
The best way a parent can protect themselves and the loan agreements made to their children is to have a formal written agreement drafted by a lawyer. Such formal arrangements have several key benefits such as:
- Outlining clearly the terms of the loan.
- Dissuading future disagreements.
- Protecting the interests of a party in the instance of the death or divorce of either one of the parties.
- Allowing for additional legally enforceable security measures to be taken like the execution of a mortgage or caveat over real property.
If you’re considering assisting your children with the purchase of their first home or need further information, we can help. Please contact us on 0249443322 or fill out the contact form below.
