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Parents warned over gifts and loans to children

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Parents across the Midlands who are considering giving their children a loan from “the bank of mum and dad” are being warned to ensure it is secure in case relationships breakdown.

Lawyer Richard Connolly said unsecured cash gifts and loans from parents to children are at risk if relationships between the child and their partner break down.

Mr Connolly, a partner at law firm mfg Solicitors, which has across the Midlands said the funds can be subject to claims and lost altogether in costly court battles if they are not protected prior to being handed over.

He said: “With house prices significantly higher than they were a generation ago, more and more parents are helping their children out with the cost of buying, either through a loan or a gift. What too many parents do not realise is that even though that money went to their child, that child’s partner could have a claim to it.

“It’s a grey area that too many are missing and it means parents have to make sure they put in place security to protect that cash investment. There are various ways of doing so, such as trust deeds, legal charges and official loan agreements.”

He added that it was important for parents to take legal advice early on, before their child has chosen a property to buy, so that everyone involved knows how the money is being given and that it is protected.

Mr Connolly said there were also complications involving mortgage lenders, who needed to be aware of the cash investment as it may affect the mortgage.

“When you’re helping your child start out, perhaps even settle down with a partner they’re intending to spend their life with, the last thing you want to think about is the relationship ending,” he said.

“Unfortunately, it is essential to prepare for this eventuality so that the funds stay in the family. With proper advice it can be handled very swiftly, without awkward conversations and everyone can concentrate on planning for the future.”

Richard Connolly is available to advise parents on gifts and loans to their children by calling 0845 55 55 321 or by email through