Practitioners asked to act in transactions where parents lend money to their children to help them buy a house should stop and think about the transaction. Who are they acting for? Who else could think the practitioner is looking after their interests?
If you are acting for the child in the purchase of the property you should recommend that the parents obtain their own independent legal advice and tell them you cannot advise them.
Alternatively, if you are asked by parents to document a loan to their child you need to make it clear you are not acting for the child and recommend the child get their own legal advice.
You should also recommend the loan document you draw covers all the things that an arm’s length transaction would cover even if the parents just want a basic document covering the terms they had discussed with their child.
You should discuss the importance of having proper security for the debt. There may be circumstance beyond the control of their child that affects whether the parents’ loan is protected. The child’s domestic relationship may break down and the equity they have in the property may be lost in property settlement. The child may become bankrupt and lose the property. In the event of the parents’ death or insolvency there could be beneficiaries or trustees in bankruptcy who complain you did not act appropriately.
Keep a record of your advice and the client’s response and instructions.
Financial transactions within families can be fraught with difficulty often because the arrangements are handled in an informal way and then the parties have a falling out. Don’t take for granted that the happy family today will continue on that way.
