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Welcome to The OMB Law Board, the podcast where legal insights meet practical advice. Hosted by Simon Bennett, Managing Partner at OMB Solicitors, this show delves into what you can expect when engaging with OMB Solicitors. Specialising in property law and commercial law, OMB also boasts dedicated teams for estate planning, contested estates, body corporate matters, litigation, and family law.
Each episode features in-depth discussions led by experienced team leaders, some with over 20 years of expertise. You'll gain valuable knowledge on initial consultations, cost assessments, timelines, and the importance of clear communication and confidentiality in legal matters.
Join us to break down barriers and navigate your legal journey with confidence. Tune in for expert advice, client stories, and tips on how to prepare for your legal needs. The OMB Law Board is your trusted source for all things legal.
00:00:06:03 - 00:00:13:15
Unknown
Welcome back to the OMB Law Board. I'm Simon Bennett and today I've got Erlinda Nunn with me. Welcome back. Linda. Thanks for having me, Simon.
00:00:13:15 - 00:00:30:20
Unknown
Now, this sounds like a really simple concept of a party gifting property to a family member or a friend, but it's absolutely one of the most risky ventures we see for the party gifting, particularly Alinda.
00:00:30:21 - 00:00:35:05
Unknown
Tell us a little bit about that and how you see that happening today.
00:00:35:07 - 00:00:50:06
Unknown
Yes. So sometimes people will want to gift property to, as you say, another family member or a friend. Sometimes they will do it because they want to help them out. We all know how hard it is to get into the property market at the moment.
00:00:50:08 - 00:01:23:03
Unknown
They might do it for asset restructuring purposes or asset reduction purposes, and they might do it because they think they're a family member or a friend and they trust them, and there's not going to be any issues in their gifting my property. So if you find yourself in a situation of either considering a gift to a family member or in fact receiving a gift from a family member or friend, you need to listen with us today because we're going to drill down on some of the legal issues surrounding this type of transaction.
00:01:23:04 - 00:01:24:23
Unknown
So let's get into it.
00:01:24:23 - 00:01:45:03
Unknown
Where do you see these gifts occurring? Mainly. Usually it will be from parent to child. Sometimes a parent will do it because as we said, they want to help their kid out. They want to help them get into the property market. Mum and dad might be looking at going into aged care and things like that.
00:01:45:03 - 00:02:09:23
Unknown
And as we know, they look at what assets you hold at the time you go into those sorts of arrangements and things of that nature. And sometimes also we see almost preemptive will bequeaths. So rather than waiting until I die to give the property which, you know, won't help the children at that stage, I'm going to give it to them now preemptively before I die.
00:02:10:00 - 00:02:26:20
Unknown
Yes. That's right. Sometimes people will do that as part of their estate planning as well. Okay. And one of the really tricky scenarios that we've seen is where, say, the parents are living in a property, but they give that property to a child.
00:02:26:20 - 00:02:34:03
Unknown
Maybe you could give our audience a bit of a run through of some scenarios and some problems and examples that we've seen.
00:02:34:05 - 00:02:36:09
Unknown
Now, before we get into how we can probably deal with
00:02:36:13 - 00:02:57:05
Unknown
That's correct. So one of the biggest risks and sometimes what people don't realize is that once they gift property, they relinquish their interest in the title, which means once their name comes off, they technically no longer have an interest in that property, so they lose the right to be able to make decisions in connection with that property.
00:02:57:07 - 00:03:21:10
Unknown
So, for example, they could risk, if they're living in the property, their child eventually kicking them out or selling the property, and they won't have any rights to say, well, no, I don't agree to that. So once the property is gifted, legal title passes to, in this case, the child, and they have fallen unencumbered ability to deal with the property.
00:03:21:10 - 00:03:48:18
Unknown
Is that what I'm hearing? Yes. And for example, this week I've seen a client who has gifted money towards a property purchase for their child. They didn't have an interest on the title, but the deal was that the parent was allowed to live in the property until they died. Now the child has gone back on their promise and has said, hey mom, you've got to get out of the property.
00:03:48:20 - 00:04:04:17
Unknown
The risk with that gift was mum doesn't have an interest in the property, so now it's a difficulty of proving that it was a gift and it was conditional on this. And now we're trying to help her stay in the property.
00:04:04:17 - 00:04:14:14
Unknown
Wow. So there's a couple of really interesting scenarios that you've just dropped on us there. One is where I've given my house away, but I expected to keep living in it and I can't.
00:04:14:15 - 00:04:38:19
Unknown
And the second one is where I've made a gift of money towards a property purchase, with the expectation that I'd have a right to live in the property. And again, just said, there's just this week that that's been taken away. Yes. Unfortunately. And these are things that we see all too often. And again, it comes down to how we document that arrangement generally between friends and family.
00:04:38:21 - 00:04:49:13
Unknown
We see that there's the trust. There's not going to be a problem until there is a problem. And we need to be able to look at what was the intention at the time that the gift was made.
00:04:49:16 - 00:05:04:10
Unknown
Unfortunately, some of the biggest disputes we see are actually between friends and family. That's great. Talk us through what sort of documentation and how we could structure those gifts, potentially to prevent these type of scenarios.
00:05:04:10 - 00:05:30:01
Unknown
So what what have you seen? So sometimes we've seen a deed of gift which is between the parties, which says that I'm going to give you my property for no consideration. And that's that's a standard document that we can draft with these types of transactions. Sometimes people will record them as a contract. A contract gives you a little bit more added protection, as we've got the standard terms that govern those transactions.
00:05:30:01 - 00:05:50:01
Unknown
And if we have valuations and things like that, then they're often seen at arm's length. And could those gifts be made conditional upon a right, for example, of a life estate or a right to reside in the property? Correct. In those sorts of scenarios, there are things such as a granny flat agreement which will say, I'm giving you this amount of money.
00:05:50:07 - 00:06:07:11
Unknown
In exchange, I get to live in the property. And how would you protect that? Right? In a property that, quite rightly, you've said I no longer own. I'm not on title. What's to stop that child dealing with the property by way of selling it or what have you?
00:06:07:11 - 00:06:16:05
Unknown
For example, the client that we saw this week to protect their interest in the property, we lodged a caveat over the property.
00:06:16:05 - 00:06:42:00
Unknown
So a caveat is something that essentially stops anyone else from dealing with the property. So now that we've protected our interest and lodge the caveat, the child can't sell or otherwise transfer the property, and it registers the interest of the parent. As a caveat, all that's correct over the property. So other people are given notice that I, as the parent, had some interest in the property, although not the registered owner.
00:06:42:01 - 00:07:02:20
Unknown
That's right. Okay. And can you give us any other examples where you've seen a gift go wrong? Sometimes we see gifts go wrong when it wasn't actually intended to be a gift. So it's important to distinguish whether it is a gift, whether we're giving it away for no consideration, or whether we're expecting to be repaid at a later date.
00:07:02:21 - 00:07:24:15
Unknown
So in the scenario where you mentioned and the money had been given for the property, that may well be documented by way of a loan, a loan agreement and some security, like a mortgage on the property. That's right. That's how we would often structure those deals that way. It governs what money was advanced, the terms of the repayment when we expect to be repaid.
00:07:24:15 - 00:07:49:09
Unknown
And loans like that with family can often be documented as a loan with repayment terms, etc., which, if the parents choose to, could later be forgiven, for example, in a will. Upon their death. Or something like that? Yes. So there's ways to structure it. There are many ways to structure it. Okay. So what I'm hearing, and I think what our listeners and viewers will take away from this is gifting property is not simple.
00:07:49:12 - 00:08:17:10
Unknown
There are circumstances where the gift is conditional, and the person making the gift is expecting certain things in return. If that's the case, we need documentation. We 100% need documentation, and secondly, that sometimes it won't be a gift. It's actually a loan. And particularly in those circumstances, we could consider loan documentation and security by way of mortgage or caveat, etc..
00:08:17:10 - 00:08:47:11
Unknown
That's right. They're the documents that we need in place to be able to look back to if a dispute ever arises. So if you're considering either making a gift to a family member or friend, or in fact taking a gift from a family member or friend, you really need to get solid legal advice regarding that transaction. What obligations or rights come with that obligation and it needs to be properly, properly documented.
00:08:47:13 - 00:09:04:22
Unknown
Erlinda and our property law team can help you out with those sort of documents. And Erlinda, thank you so much for joining us and explaining what I thought was a pretty easy area, but is in fact quite complicated. Thanks, Simon. Thanks for joining us on the OMB Law Board podcast, and we look forward to seeing you again shortly.