Gift vs Loan: What’s the difference and Why it matters in Estate Planning

Property Law
Trusts, Asset Protection & Estate Planning
Jul 10 2025

It is common for parents to help children financially – whether it is a deposit for a first home, help with debt, or business support. However, when that money changes hands, it is important to be clear: was it a gift or a loan? This simple distinction can have significant legal and financial consequences, especially when it comes to estate planning.

What is a Gift?

A gift is a transfer of money or property made with no expectation of repayment. In legal terms, once given, the money no longer belongs to the giver.

Key features of a gift:

  • It is unconditional.
  • There is no written or implied agreement for repayment.
  • The recipient is free to use it however they like.
  • It can affect future Family Protection or Relationship Property claims.
  • It can affect the ability to qualify for residential care subsidy or other Government support.
Family Relationships

Care needs to be taken where you are gifting money to your child and their partner, such as to help them into a property. Should that relationship break down, the partner would not necessarily be required to pay back any portion of the gift, therefore walking away with half of the gifted money.

Dealing with banks

If you are taking out a mortgage or loan with a bank, gifting certificates are often required 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 bank loan end up in default. There are ways to record this on terms 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”.

Estate implications

If you have made significant gifts during your lifetime, this can reduce the assets available in your estate. If you give more to one child than another, it could cause disputes or be challenged under the Family Protection Act 1955 by children who believe they have not been adequately provided for.

What is a Loan?

A loan, by contrast, is money given with the expectation it will be paid back, either on demand or on agreed terms.

Key features of a loan:

  • It may be interest-free or interest-bearing.
  • There is usually some record of it (e.g. a loan agreement or promissory note).
  • It may be repayable on death or earlier.
  • It can be secured (e.g. against property) or unsecured.
Better protection

A loan provides protection in the scenario where you are advancing money to your child and their partner. 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. 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.

Estate implications

A properly documented loan becomes an asset of your estate. Your executors can call the loan in after your death. This is especially useful if you want the amount to be eventually divided fairly among all children but are happy for one child to have the benefit of it in the meantime.

Beware of time limits under the Limitation Act 2010

If a loan is not properly documented, or if there is no clear date or mechanism for repayment (such as being repayable “on demand”), you run the risk that the loan becomes unenforceable over time. Under the Limitation Act, the right to enforce a debt usually expires six years after the cause of action arises. If the loan is repayable on demand, that six-year period may begin as soon as the money is transferred – unless otherwise specified. To protect your estate, it is important that any loan agreement includes clear repayment terms and triggers for demand, to ensure it remains recoverable.

Why the Difference Matters

Failing to document whether financial support was a gift or a loan can lead to:

  • Disputes between siblings over whether the recipient should get more than others.
  • Relationship Property claims, especially if a child separates and their partner claims half of what was received.
  • Unintended tax or trust consequences, if the money was meant to be protected.
  • Expired claims, if the estate cannot legally recover the loan due to limitation periods.
How to Protect Your Intentions

Document it clearly: Use a deed of gift or a formal loan agreement. This helps your family and your executors understand your intentions.

Include repayment terms: Clearly outline when the loan is due, how it can be demanded, and what triggers repayment – this avoids limitation issues.

Consider your Will: Your gifting or lending decisions can affect what is in your estate – make sure your Will aligns.

Talk to a lawyer: A small amount of advice now can save thousands in legal fees (and family stress) later.

Whether you are helping your children financially now or planning for what happens after you are gone, be clear about your intentions. A well-planned estate not only protects your assets but also your family relationships. If you are unsure whether past financial help was a gift or a loan – or you want to formalise it – talk to the Holland Beckett Succession and Estates team.

This article was first published for First Mortgage Trust, July 2025 newsletter.

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