Georgina Smith

Due to the rising cost of living and interest rates on mortgages, it is not uncommon for families to advance money to their loved ones to help them on to the property ladder. Due to the natural relationship, these advances usually go undocumented. However, there are several factors that need to be taken into account before making such an advance. If you want to assist your child with a house deposit, you need to ensure the advance is correctly recorded. Are you expecting them to pay you back? If so, is the repayment with or without interest? Or is it a “no strings attached” gift? GiftMoney passed from parent to child is generally regarded as a gift, unless evidence proves otherwise. There is no obligation for a gift to be paid back by the recipient(s). Care needs to be taken where you are gifting money to your child and their spouse, such as to help them into a property. Should that relationship break down, the spouse would not necessarily be required to pay back any portion of the gift, therefore walking away with half of the gifted money. Gifting certificates are often required by a bank where a family member is advancing a portion of the purchase price. This is so the bank isn’t in competition with anyone to get their money back should the loan end up in default. There are ways to record a loan on terms that acceptable to the bank, while also protecting the advance. The document needs to be worded in such a way that doesn’t impede on the banks rights to be “first in line” if the loan defaults. Other considerations include whether this will affect any inheritance you may plan to leave. Are you intending for your child to receive less inheritance than their siblings due to this gift? If so, your Will also needs to be updated accordingly. LoanUnlike a gift, a loan is repayable on terms agreed at the outset. The loan can be interest free (or very low interest) and can be repayable “upon demand” rather than a specified date or loan term. However, as noted above, when banks are involved they will usually not allow a loan with interest or a specified repayment date, as this can affect the banks priority if the loan is defaulted. A loan provides protection in the scenario where you are advancing money to your child and their spouse. If this relationship later breaks down, you can “call up” the loan and have this paid back. You can then re-lend the money to your child once the separation is complete for another purchase, if you choose to. Again, estate planning comes in to play. Is the loan forgiven on your death (assuming it hasn’t already been paid back)? Or is the recipient required to pay back your estate? More considerations are needed when a Trust or other entity is involved, as well as further relationship property aspects not covered here. If you are unsure whether you should be making a gift or a loan, get in touch with us and we can assist you through the process.

What is a guarantee and indemnity? When approaching a lender for finance, they may request a guarantee be provided as security alongside the loan documents. A guarantee is a separate promise to the lender stating if the borrower doesn’t meet their obligations under the loan, you as guarantor will fulfil them. Lenders require you to see a lawyer before you sign a guarantee. This is because when they go wrong, they can go really wrong, and (before you sign up to a guarantee) you need to have a good understanding on the risk involved and your rights and obligations under the guarantee. A ‘bank’ guarantee can take various different forms such as: A couple guaranteeing their family trust’s borrowings Parents guaranteeing their child’s borrowings A person guaranteeing their company’s borrowings There are other forms of guarantees which we do not discuss here, such as providing a guarantee under a lease or an agreement for sale and purchase.  What you should know about guarantees What is an indemnity? Often called a “Guarantee and Indemnity”, an indemnity is actually a separate obligation to a guarantee. A guarantee relates to the debt or default of the person who is primarily responsible for the loan (the borrower) while the guarantor has the secondary obligation. An indemnity is a contract by one party, to prevent the other party against loss. An indemnity creates a primary obligation from the guarantor to the lender. Meaning an indemnity can be enforceable, even when the guarantee may not be. Limited vs Unlimited A guarantee can be unlimited, meaning any debt created by the borrower will be captured, or the guarantee can be limited to a specified amount. This limits your exposure under a guarantee as you would only be liable to the extent of the guaranteed amount. Lenders lean toward unlimited guarantees as this is a better credit position for them. All Obligations Under an “all obligations” guarantee you are liable for any current and future debts the borrower owes to the lender. Do you know every debt the company, trust or child you are guaranteeing has, or may get in the future? If not, you may be signing up for debt you are not aware of.  If you are the sole director and shareholder of your company, you likely have a fair idea of the company’s financial situation. However, if you are guaranteeing your child to help them into a house, you may not have the full picture of debts they have (such as credit cards or car loans).  It is important to have clear communication and transparency between parties.  You can also consider asking for financial information or accounts to give you additional comfort, if available. Joint and Several If you are not the sole guarantor, the lender will often include wording that the guarantors are “jointly and severally liable”. This reserves the lender’s right to seek payment from any person on foot under the guarantee (to the exclusion of the others). In the event that one has more valuable assets and a higher prospect of meeting the guarantee liability were it called up, then they could pursue that person singularly. If you are looking at entering into any sort of guarantee (including those not discussed above, such as a guarantee in a Deed of Lease for example), we recommend you touch base with our property law team who will assess your particular circumstances and give tailored advice about any risk and your rights and obligations in respect of the proposed guarantee.

With our borders opening up again, the lure of hopping on a flight that lasts more than 2 hours is strong. Regardless if you are packing your bags for two weeks or two years, there are several things you should consider before you get to that boarding gate. This list of considerations could become extensive pretty quickly, so we have limited our comments strictly to a few key matters to ensure your legal ‘house is in order’ and we leave you to decide whether to exchange your money to Pounds Stirling now or on arrival, and how many pairs of shoes are too many to pack. Do I need a Will? The short answer is yes. A Will is an important document, regardless of your age and stage. Every adult should consider having a Will. It does not have to be a complex or time-consuming process. At Holland Beckett Law, we understand that your focus might be on different things, such as whether to go to Rome or Venice (or both), so we can prepare a Will for you that is fit for purpose and meets your present needs. [click here for more information] Should I have Enduring Powers of Attorney in place? The common misconception is that Enduring Powers of Attorney are reserved for ‘old people’. This is incorrect. In the instance of the proverbial “hit by a bus” (or falling off a scooter may be closer to home), if you have an accident or injury that renders you unable to make your own decisions then these documents assist your health professionals and family know whom to speak to and manage your affairs. But take accident or injury out of it, what happens if you are trekking Everest (there’s no wifi up there…) and a critical document needs to be signed or a funds transfer made – with these documents in place you can leave your affairs in the hands of the people you trust, and carry on with getting that perfect Insta shot at the summit. [click here for more information] Who can administer my Trust in my absence? Trusts are a separate consideration, and require a (similar but) separate document to enable someone to act for you in your capacity as a trustee in respect of the assets of the Trust whilst you are overseas (rather than in your personal capacity for your personal property). If you have a Trust, your Will should also include provisions to deal with the Trust should the worst occur. At Holland Beckett Law, we can provide you with guidance on how best to have these matters structured during any absences from NZ. [click here for more information] Further, Trusts are governed by the Trusts Act 2019 (which came into force on 30 January 2021) which, amongst other things, reformed the duties and obligations on trustees particularly regarding disclosure obligations to beneficiaries. As part of the above structuring process, we can advise you on how the Trusts Act 2019 will impact you. Here at Holland Beckett Law, we understand that the ‘Big OE’ is a rite of passage for lots of kiwis, and it is a very exciting time – but even the best laid plans go awry, so preparation is key. We would be happy to discuss with you how you can best prepare yourself and your affairs to ensure smooth sailing….hopefully around the Greek isles.