Helping Your Children – Loan or Gift? – Simple Legal SolutionsProperty & Estates
Andrew has recently started his own business. Andrew has incorporated a company of which he is the sole director and entered into a number of contracts with suppliers. As the director Andrew has also signed a number of personal guarantees.
Andrew’s father Mark wants to help Andrew out with his new business venture and has agreed to advance Andrew the sum of $50,000.00 to get him started. Mark doesn’t care if he is not repaid and considers it a gift. Mark simply wants to help his son as much as possible. Mark seeks legal advice about his intention and how he can best help his son.
Mark should make a loan to the trading company subject to the company providing security for repayment. Mark should take security over any real property owned by the company and register his interest on the Personal Property Security Register. This will assist Mark to recover as much of the advance as possible in the event that Andrew’s company faces liquidation. If Mark does not document the loan and take security, Mark will be an unsecured creditor of the company and have difficulty recovering any of the loan.
Further, if Mark does not document the loan, a Court may find that the loan was an advance from Mark to Andrew and the Presumption of Advancement, whereby a loan between family members is considered a gift, would apply and the loan would not be recoverable by Mark.