In wealthy families, money moves between generations all the time: a deposit for a son’s apartment, capital for a daughter’s business, a transfer to cover a grandchild’s fees in London. It is rarely documented. When the parent dies, the question becomes urgent. Was the $2 million a loan the estate can recover, or a gift the child keeps on top of an equal share?
How the law approaches it
- Evidence comes first. Loan agreements, bank records, emails, WeChat messages, tax returns, and how the parties treated the money over the years.
- The presumption of advancement. Where a parent transfers money or property to a child, Australian law traditionally presumes a gift unless the evidence shows otherwise. The presumption can be rebutted, but someone has to prove it.
- Repayment history. Interest paid, a schedule followed, or the loan recorded in a family company’s accounts all point towards a loan.
- Old loans and time limits. A loan may be too old to sue on. But under an old equitable rule, the rule in Cherry v Boultbee, an executor can often still deduct the unpaid debt from the borrower’s share of the estate.
- The will itself. A will can forgive loans, require them to be brought into account, or treat lifetime gifts as advances on inheritance. Many do not say anything.
Typical disputes
- One child received a house deposit, the others did not, and the will splits the estate equally.
- A child’s business borrowed from the parent’s company, and the company is now controlled by a sibling.
- A parent’s account was used to pay a child’s mortgage under a power of attorney in the last years of life.
Getting it right while alive
- Put significant loans in writing: amount, interest, repayment and what happens on death.
- If you intend a gift, say so, and say whether it should be taken into account when the estate is divided.
- Keep a family ledger of advances and give your executor access to it.
Frequently asked questions
Is money a parent gave a child a loan or a gift?
It depends on the evidence, including loan agreements, bank records, messages, tax returns and how the parties treated the money over the years. Where a parent transfers money or property to a child, Australian law traditionally presumes a gift unless the evidence shows otherwise. Interest paid or a repayment schedule followed points towards a loan.
Can an executor recover an old loan the deceased made to a child?
Often, at least in part, even if the loan is too old to sue on. Under the rule in Cherry v Boultbee, an executor can often deduct the unpaid debt from the borrower’s share of the estate. The outcome depends on the evidence that the money was a loan and on what the will says.
Are lifetime gifts counted when an estate is divided?
Only if the will provides for it or the evidence shows the money was a loan. A will can forgive loans, require them to be brought into account, or treat lifetime gifts as advances on inheritance, but many wills say nothing. If you want earlier gifts counted, say so clearly in your will.
How can parents avoid loan-or-gift disputes between their children?
Put significant loans in writing, including the amount, interest, repayment and what happens on death. If you intend a gift, say so, and say whether it should be taken into account when the estate is divided. Keep a family ledger of advances and give your executor access to it.
Chua Tan Associates advises families, executors, trustees and their professional advisers on estate planning, estate administration and estate disputes, in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal advice. Victorian law unless stated otherwise.
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