Last week alone I received four instructions where children were providing financial support to their ageing parents. This was a surprise because my instructions are usually from parents helping children buy their first home, due to the high house prices.
Cashing up
On the other end of the spectrum, we are seeing Baby Boomers who are asset rich but cash poor. We’ve found clients are loaning their parents cash. These loans are being secured in one of two ways. A mortgage over the parents’ family home, with repayment expected upon the death of both parents. Or children are being sold a portion of the family home in consideration. Both of these methods are recommendable in protecting the children’s financial contribution. However, there are issues that both parties should turn their minds to.
Considerations
It is always advisable to put a property sharing agreement in place, should a portion of the family home be sold off. This outlines the responsibilities of the parties with respect to the maintenance of the property and the sharing of costs. Typically the parents will continue having exclusive use of the property. They may be responsible for the minor maintenance of the property and the cost of utilities. However, the cost of insurance and rates are usually in proportion to the parties’ share of the property.
In an ideal scenario, all siblings are able to contribute financially if required. They can either register a mortgage against their parents’ property or be given a portion if it is sold to them. An issue that can sometimes be overlooked is when all the children are not all able to financially contribute. As parents require more assistance and only one child can provide the funds, it can raise issues when the only source of inheritance has effectively been bought by one child. In such circumstances, we encourage clients to have a delicate but necessary conversation to avoid potential family protection claims.
If there is still a mortgage registered against the property, then a second mortgage in favour of the lending child in most cases will require the consent from the first mortgagee. Priority amounts would then need to be considered to ensure that the second mortgage in favour of the lending child is covered.
If the parent’s home is held in a trust, such lending must fall within the scope of the trust deed. Your lawyer can advise.
Next steps
If your family is considering entering into a similar arrangement? We encourage you to discuss your options with us before making any commitment.
