Can the ‘Bank of Mum and Dad’ dictate how you spend your early inheritance? · Getty
Welcome to Yahoo Finance’s legal column where lawyers Alison and Jillian Barrett from Maurice Blackburn tackle problems everyday Aussies face — whether it be consumer, property, money matters impacting relationships or work. This week, a young Aussie feels the strings attached to an early inheritance.
Question
I have been very lucky to be gifted an early inheritance from my parents. I am looking to use the $150,000 to get a leg up and buy a property but there’s something that’s made it really difficult.
Unlike a traditional inheritance that I could use as I see fit – they are still here and are trying to push me into a purchase I am not comfortable with. They want me to go for a Sydney property that would make my repayments really high. I am happy to look at something more in my capacity for repayments and potentially rentvesting, thinking as the place more as a future win. They’ve signed the cheque but haven’t handed it over and have been talking about getting a contract together that dictates how I spend it. I guess I am wondering what legal recourse they would have to take the gift back if I didn’t do what they wanted. I know it could be awkward within our family dynamic but I am willing to cop that. They have given the same amount to my older brother but they aren’t meddling in his and his wife’s choices. I think it’s because I am a single woman in my 30s.
If I get my hands on the cheque and bank it – where is the line? Is that money mine to do what I want with freely? Or is it possible for them to put contractual obligations on how I use that money.
Kelly, Sydney.
Answer
In an era of skyrocketing property prices early inheritances are becoming more common.
Early inheritance refers to the act of giving part or all of a person’s intended inheritance to beneficiaries – typically children or grandchildren – while the giver is still alive, rather than waiting for formal distribution of an estate after death.
Common forms of early inheritance include cash gifts (for example for a home deposit or education costs), property transfers, forgiving personal loans, or inheritance loans (structured financial support that may be offset in a will).
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Early inheritances are becoming more common as the “bank of Mum and Dad” may want to ensure there is equality between children.
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Rising housing costs and cost-of-living pressures mean parents and grandparents don’t want their loved ones to struggle financially.
Meanwhile, Australians are living longer and want to see the impact of their support, rather than put their loved ones through probate delays that can take months.
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Under Australian law, the distinction between a gift and a conditional gift is critical.
A true gift requires two things: intention and delivery.
If your parents intend to give you the money and you receive it without conditions, it’s legally yours.
But if they attach terms, like buying in a specific location, and especially if those terms are documented, it may not be a gift at all.
It could be a loan, a trust arrangement, or a conditional gift, each with very different legal implications.
Alison and Jillian Barrett are Principal Lawyers at Australia’s leading plaintiff law firm, Maurice Blackburn. · William Gordon Photography
If your parents draft a contract dictating how the money is used, and you sign it, they may have legal recourse if you breach those terms.
But if you receive and bank the cheque without any formal agreement, it’s likely to be treated as an unconditional gift, especially if there’s no evidence of a loan or trust arrangement.
This is because for an agreement (or contract) to be enforceable, there needs to be an offer, acceptance and consideration:
An offer is a clear proposal made by the offeror to the offeree indicating a willingness to enter into a contract on specific terms. It must be definite and communicated, and generally it can be revoked before it is accepted (eg. “I will give you $150,000 as an early inheritance if you agree to purchase a property in Sydney with this money”)
Acceptance is the unqualified agreement to the terms of the offer by communicating that clearly. You cannot change the terms of the offer when trying to accept it (eg, you cannot say “I accept your offer of $150,000 but won’t be purchasing a property in Sydney”)
Consideration is what each party gives, or promises to give, in exchange (eg, your parents would be giving you an early inheritance and you giving a promise that you’ll buy in a certain area).
If your parents insist on a contract with conditions, seek independent legal advice before signing anything.
We recommend that you communicate clearly with your parents about your concerns, and your intentions for the money — they may agree that rentvesting is the perfect option for you.
This legal information is general in nature and should not be regarded as specific legal advice. If you need legal advice, you should consult a solicitor.
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