About to inherit a sum of money...

Hi everyone,

Newbie here!
I'm hoping to get some guidance here.

I'm about to inherit a large sum of money from parents and I'm currently in a de-facto relationship.
My parents want me to have a legal document draw up with my partner which will essentially protect me from losing that money (in case things get nasty).

What are my choices for this legal document?
I've done a little bit of reading on this and I've come across BFA's (Binding Financial Agreements).

Is this my only choice? And if so, what is wrong with just getting draft up a very well worded documents (ie something that says she will not touch the money if something were to happen) between my partner and I..and having it witnessed by a JP or something?

Thanks!

 

Having heard of some horror stories, I'd speak to someone like @Terry_w quicksmart, and yes, make sure its 100% tightly sewn up. I think it's only fair on your parents (and you).

 

Agreements like that are generally worth the paper they are written on. You cant contract away rights under family law

 

If your parents are alive, I think it’s a gift not an inheritance.

 

Have you discussed this with your partner?
What if she refuses to sign on the grounds you should trust her to do the right thing, which clearly you don't?
You may have to decide if your relationship is more important to you that the gift of money.
There are no right or wrong answers, just things to consider.
Marg

 

Maybe the question is about whether or not you trust your partner. You can both lose money, or gain it.

 

I am saddened for you that your parents are ill.

If your parents have suggested such an act you need to consider how you feel about it and then truthfully talk to your spouse and parents about how you want to manage this process. This will probably be difficult conversations and their are different ways you can approach this.

However the highest value work will be the discussions with your parents and spouse about the potential wealth, it’s purpose and how the inheritance is meant to be managed.

Avoid the temptation to simply get a 38 page document prepared and think that is the answer.

If that does not work, or if it is difficult, go to an accredited family business advisor - fambiz.org.au

You will find family lawyers, business people, psychologists, business valuers, investment advisors and tax guys who are used to this type of succession thing.

 

Sounds like your parents are still alive!

Get some legal advice quick. It might be best to reject the gift and take a loan from your parents. If they die before you the loan could continue from a testamentary discretionary trust which will provide additional asset protection.

If you receive a gift now the only option is to enter into a BFA. Drafting one up yourself will not work because the Family Law Act says each party must get legal advice and if you do draft it up yourself the lawyers will need to redo it. Expect to pay $5k to $10k for this.

 

Thanks everyone for writing back to fast! To perhaps provide some clarity on this, my parents are still alive (and they're well - thank god). We've entered into an arrangement where there is an expectation that this will be paid back (apologises for the wrong use of terms in my thread subject). I've already started to pay this down too.
Long term, I plan to use equity from one of my properties to effectively refinance them (as I generally hate owing people money).
My parents and I haven't put together a formal contract - its more a handshake deal where i pay interest monthly and hammer down principal when cash flow permits.
Given all of the above and the need to still 'protect myself' does this change my options?

Again...sorry for the rookie use of terminology

 

You've confused a gift with a loan and an inheritance with a loan!

You should make a formal contract with the parents, especially if you will be borrowing to pay them back.

 

From a tax perspective a informal loan may well be argued by the ATO to be a gift and deny any of all interest when they realise that not only is it informal in execution but the tracing of funds may not have directly settled the property if it went through own personal bank account. The manner in which the loan is maintained and accounted for may not meet minimum expectations either.

Potentially issues for parents too if they consider seeking any Govt assistance in the future. And the impact on their taxable income/s. Withholding interest if they arent resident etc. Many issues. Q : What may happen if they did soon ? Could the loan become an estate debt and a sibling issue ? Or may the loan terminate ?

Thse sorts of issues needs legal supervision

 

Clearly this is intended to be a loan.

For everyone's sakes, get everything fully documented to avoid future problems or misunderstandings.

Good legal advice before proceeding will be well worth the expense.
Marg

 

Nothing is clear if its not documented and also maintained as a loan.

Paying $XXX a fortnight may be repaying a interest free loan, repaying interest, repaying the P+I or be a nice way to support your parents who gifted funds to you. Perhaps you gifted money to them and they have participated in a scheme ?? On their death the loan could also cease to be a loan and become a gifted inheritance and sever the loan deductions if its undocumented too - executor may think its a gift ? Loads of possibilities.

The ATO approach for undocumented related party loans is to be sceptical. Typical question - If it was a loan what are the terms and why would it be undocumented. Ahhh we think its a gift. Perhaps you transferred the funds to mum and dad and then borrowed it from them to create a fake loan ?? Prove us wrong. No accounting for the loan by the lender ? Maybe fatal if they dont account for what is income and indebtedness.

During audit disputes with ATO, loans are often subject to review and even a documented loan held to be a scheme intended to produce a tax benefit or a sham, a round robin of funds etc. I just had a client matter finalised where a liquidator denied claims for apparent loans as they werent well documented and maintained. The apparent secured creditor was defeated by lack of evidence of what they claimed they lent the company.

Maintaining the loan consistent with the agreement and accounting for the debt, interest, repayments etc important. When both parties agree to the loan balance and each movement there is far less to question...Like your bank does.

IMO legal advice and documentation is an absolute must.

 

Being on the receiving end of a family loan that went south some 30 years ago, I can not stress the importance of this. DO NOT DO ANYTHING INVOLVING MONEY ON A HANDSHAKE AGREEMENT! EVER!!!!! ESPECIALLY WHERE FAMILY IS INVOLVED!

 

thanks for the advice @Terry_w @skater @Paul@PFI Really appreciate your honest feedback!!

 

So, I’m not sure if I’m reading this right. You’ve taken a loan from your parents and will be repaying it using household money, but your parents want you to enter into an agreement with your defacto spouse so the asset purchased using the loan isn’t part of the household asset mix in the event of separating? Because, if this is correct, I doubt such an agreement would hold up in a family court situation. Just wouldn’t be a fair division of assets.

 

This story has more twists and turns than the Brisbane River.

 

A loan is a debt that has to be repaid so if a valid loan is in place that will mean less marital assets to divide. If it was a gift the asset pool would be much larger.

 

@Renovator, get your parents to gift me the money (no document necessary), I will loan it to you (document mandatory) and my kids will inherit the money when I go (document mandatory) .

In this way, you can guarantee your parents your de facto won’t get the money .

In the very least, I trust I have clarified these very important words.