We see all too often what starts out with the best of intentions can quickly turn into tension, confusion, or even family breakdown.

Seek advice;

We advise on these matters often and with increased frequency, we can confidently say that with some good advice many of these situations are completely avoidable, our role as a Wealth coach and adviser provide clients the opportunity to talk about things before they do them and this allows advice to assist them with planning and protection before they start.

 

Family loans are increasing;

  • We are seeing that as the cost of living rises and families rely more on each other for financial support, we’re seeing more parents, siblings, and grandparents stepping in to help.
  • Clients often do not realise that lending money to family can be risky, you may not get it back—or worse, your relationship could suffer.

 

Some ways to avoid the common pitfalls and protect both your wallet and your family ties;

  1. Is It a Gift or a Loan?
  • Start by being crystal clear: are you giving money as a gift or lending it as a loan?
  • What might seem obvious to you may not be obvious to them, too often a simple, “Let me help you out,” is perceived as a loan by you but a gift by the recipient. Without clarification, misunderstandings—and legal disputes—are far too common.
  1. Document the agreement, write it down!
  • Always document the terms. For loans, that includes:
  1. The loan amount
  2. The purpose of the loan
  3. Repayment timeline
  4. Interest (if any)
  5. Any collateral or security
  • Even if it’s a gift, put it in writing. If you pass away without a clear record, other family members could argue that it was actually a loan that should be returned to your estate.
  1. Who Are You Lending To—and Why?
  • It’s not just who you’re helping, but why. Are you supporting their new business? Helping them (and a partner) buy a home?
  • In these cases, having a formal agreement is critical. Otherwise, your “loan” could be reclassified as a gift, which opens the door for:
  1. Ex-spouses or creditors to claim the funds
  2. Your estate being disputed
  3. The money ending up far from where you intended

 

In our Wealth adviser role we see issues far too often—and it’s heartbreaking so keep things clear and enforceable, formalise the agreement in writing and use a lawyer.

 

Steps a legal professional can assist you with:

  1. Protect Your Loan with Security
  • If you’re lending a significant amount, consider securing the loan.
  • For Business Loans: You can register a security interest over business assets through the Personal Property Securities Register (PPSR). If the business fails, this gives you priority as a creditor.
  • For Home Loans: If you’re helping fund a property purchase, register your interest via a mortgage with the relevant state land registry. This ensures your loan is repaid if the home is sold.
  1. They can assist you to register a security interest? If it’s not done properly, it might not be enforceable.
  2. Understand Legal Time Limits and options
  • In most Australian states, you have a limited time to enforce a debt—often 6 years from the date the loan was made. After that, you may lose your legal right to reclaim the money.
  • To reset the clock, you can send a formal reminder to the borrower stating that repayment is still expected.

 

Other Important Considerations

  1. Centrelink Impacts
  • If you’re receiving Centrelink payments (like the Age Pension), any loan to a family member counts as an asset. You must report it.
  • If it’s a gift, it won’t count—but only after 5 years. Plan your giving accordingly.
  1. Tax Obligations
  • If your loan earns interest, that income needs to be declared in your tax return—even if the borrower is your child or sibling.
  • No interest? That’s fine—but make sure it’s clearly documented as a loan, or it may be treated as a gift for legal and tax purposes.

 

The right investment in advice upfront will save you a lot later, disputes happen with increased frequency these days.

 

General advice disclaimer General Advice warning: the information in this article is general in nature, it is not advice specific to your needs. If you want to act upon the information in this article then you should seek advice from a qualified professional. VJC and VJC WM accepts no liability to any party for acting from this information unless they have sought advice in a formal engagement for this purpose