By Brian Herd, Partner at CRH Law, our Lead Legal Professionals at Heather Hill Pathways.
We have all read horror stories about bad things happening to parents who go guarantor for their children and end up losing their home.
This is an article that might give you additional cause to pause before you next decide to enter into some financial relationship with your children.
Guarantees being called upon are the more obvious ways that things can go wrong. There are even more subtle ways that parents can get stung particularly when their children and the law form an unholy alliance. The source of the problem is the law’s propensity to presume. One of the best known legal presumptions is, of course, the presumption of innocence – everyone charged with a criminal offence is presumed innocent until it is proven otherwise.
But here’s another one – if a parent provides money to an adult child, the law presumes the assistance to be a gift unless the parent can prove otherwise. As financial arrangements between parents and children are usually informal, undocumented and lost in the fog of time, proving otherwise can be a herculean feat.
Just one example makes this point. It is a tragic case of a child taking advantage of mum with the assistance of the law. The salient facts were:
Not surprisingly, Muriel wants her $100,000 back from the daughter particularly because she needs it desperately to set up a new home and to meet her ever increasing medical bills.
As the relationship with her daughter is poisonous, she engages a lawyer to get her money back. In response to the lawyer’s letter requesting it, the daughter responded, to put it nicely, ‘whistle dixie – it was a gift!” It had been explained to Muriel before sending the letter that that was likely to be her daughter’s response and sure enough, it was.
Regrettably, it also had to be explained to Muriel that the law itself presumed it was a gift and, if Muriel wanted it back, she would have to prove it was not a gift but it was something else, for example, a loan.
So livid were we about the daughter’s position (yes – lawyers do have feelings and even a conscience), that we agreed to help Muriel retrieve the money for no charge. Legal proceedings were commenced against the daughter in which the onus was on Muriel, with the lawyer’s help, to try to prove it was not a gift.
To add tragedy to injustice, Muriel died during the course of the legal proceedings. Without her being able to give evidence about the circumstances of the arrangement, it made the task of proving it was not a gift even harder. Her executor is now continuing the proceedings and is hopeful of a good outcome.
However, to add even more dollops of outrage to the mix, Muriel had made a Will many years ago giving everything to her three children equally, including the Cruella de Ville daughter. She had overlooked to change it even on the lawyer’s urging when she was still alive. As such, even if the action is successful against the daughter, she will still be a beneficiary of some of Muriel’s estate.
There appears to be an expectation of intimacy and privacy when it comes to family financial arrangements. It is hush hush and not to be discussed especially if the other children don’t know. Simmering in this cultural cauldron untouched by any legal advice let alone documents, are the seeds of family implosion.
For as long as the law clings to Dickensian notions of parent/child financial relationships through the auspices of the presumption of gifting, more and more Muriel’s will suffer at the hands of their opportunistic children.