Loans and gifts of money to family members and friends

As house prices in New Zealand have skyrocketed over the past few years it has become more difficult for every day wage earners to buy their first home. It is extremely hard to save up that first deposit and also to qualify for a bank loan.

Increasingly, children and even grandchildren turn to their asset-rich parents and grandparents to ask for some help to get them started in buying a home. Often, marriages of children now fall apart and again they ask for help.

The older adults with sufficient financial means are now faced with a difficult decision once they have made up their minds to help.

“Is it wise to make gifts of such large sums to family members and friends who may need your financial assistance? Are there legal ways in which you can give such support whilst also safeguarding your own position?”

This consideration is vital to ensure that you will not lose out at a later stage. The beneficiary of your benevolence could incur debts, break their relationship or marriage or pass away unexpectedly before repaying you. You may even be income- and asset-tested for gaining a subsidy later and could regret having made a rash gift in the past.

In all these cases you will lose such gifted sums or the advantage of a state subsidy unless you have taken some simple legal precautions. Often it can be putting in place a well-documented but simple loan, for little cost and even less effort to protect you.

In other words, get legal advice before you act. Jacques is a Barrister & Solicitor with Kingfisher Trust Law Office and is their trust specialist who advises on the use of Family Trusts after introduction of the new Trust Act in 2021.