Legal Tip 120: Properly Documenting Gifts

Properly Documenting Gifts


It is very important to properly document any substantial gifts made. This needs to be done to avoid disputes over whether the gift was actually a gift or if it was a loan. These sorts of disputes come up in 3 main areas:

• Bankruptcy

• Family Law

• Death

Example 1
John gives his son $100,000 as deposit for the purchase of the son’s main residence. John later becomes bankrupt. The trustee in bankruptcy will argue that the transaction was not a gift but a loan and that it should be repaid and taken by creditors.


Example 2

John gives his son $100,000 and dies a year later. John’s new wife/daughter/aunty/beneficiary under the will disputes that the transfer was a gift. If it wasn’t a gift it would fall back into the estate and will be passed on to the beneficiaries under the will (or intestacy laws)


Example 3

John gives his son $100,000 and the son later divorces. The son then argues it wasn’t a gift, but a loan from John and therefore should not be part of any settlement with his wife.


Whichever way you go properly documenting it can save you from messy and costly disputes later.


The best way to document a gift is with a deed which is witnessed by a third party. A deed can clearly show the intentions of the parties – both recipient and the giver. It can be a good idea to scan and email to yourself so that you have further evidence of when the deed was entered into – people have been known to backdate things.


If there is a dispute showing the deed may ‘nip it in the bud’. Some of these disputes end up in the Supreme Court with costs going over $100,000.

 

Nice post Terry. Same with a gift or a loan or an investment in your own business (trading through an entity) - if you don't have an agreement then the loan may be repayable on demand if you go bankrupt. Can ruin the best structures.

 

Example 3 is getting common when parents would call in to ask so as to protect son or daughter from a messy divorce.

 

Parents should seriously consider lending rather than giving to adult children. If they are worried about asset protection on bankruptcy they could gift to a discretionary trust and the trust lend the child. Good protection on family law of the child and bankruptcy of the parent (depending on a few things).

 

Agree. I had such enquiry today. They end up telling me their life story...

 

Hope you bill in 6 min increments? Weren't we going to meet up for a coffee?

 

Yes. We must do coffee. I can breathe a little more next week Terry, how about that?

 

payment a loan or a gift? you would think that for a large sum of money from one person to another will be properly documented but no...some people are still casual about money matters, even between family members and I will be defending such a claim for a client.

 

will you be arguing it is a loan or a gift?
or a gift that was imperfected?

 

Gift but will probe further.

 

that will be one expensive coffee with both of you billing!

 

Hi @Terry_w ,

Thank you for creating this post and other posts related to Gifts . It is very useful.

For the following scenario:

Parents living overseas, leaving a property to their two adult children: one residing in the same country, the other in Australia.

The adult living overseas is going to buy out the 50% share of the property from the one living in Australia by paying in instalments in the next two years.

In term of the documents required to prove that the funds received into Australia is a gift, not income from overseas, would an agreement between the two siblings to specify that one gives up the ownership in exchange for a series of payments be sufficient or a copy of the parent’s will and their authorisation for the transaction to occur also required?

Regards,
Anne

 

That doesn't seem to be a gift. Proceeds from the sale to the sibling.

 

Probably best for the sibling to pay to the parents and the parents the gift to the other sibling.

Thank you @Terry_w

 

if the parents are still alive then planning can be done