What is a Deed of Acknowledgement of Debt?

A Deed of Acknowledgement of Debt is a legal document that records you owe a specified amount to your parents. This debt is usually repayable when the property is sold. It can be registered with or without a mortgage and provides a formal record of the loan arrangement between family members.

Should my parents gift or loan money for my first home deposit?

Most parents find gifting money to be the simplest option as it avoids personal obligations related to tax and bank requirements. However, a loan provides more protection for parents' contribution. The best choice depends on your family circumstances, and all parties should get independent legal advice to understand the pros and cons of each option.

Can my parents be co-owners on my first home title?

Yes, parents can be registered as joint owners on the property title. However, banks will usually require them to be co-borrowers or guarantors on the loan, and you would need their consent for selling or refinancing. A Property Sharing Agreement is recommended in this scenario.

What is a Declaration of Trust for property ownership?

A Declaration of Trust allows parents to co-own the property without being recorded on the title. This document records that the parents have an interest or percentage in the property, with the other co-owners holding the property on trust for them. This provides a way to protect the parents' contribution while keeping the title in the children's names.

Legal Toolkit: The Bank of Mum and Dad – Loans vs Gifts

In Part 3 of the Legal Toolkit series (see Part 1), we highlight the differences between a loan from parents vs a gift from parents (AKA the bank of Mum and Dad). As always we recommend getting good independent legal advice.

The Bank of Mum and Dad – Loans vs Gifts

There are various ways that monetary assistance from your parents towards the purchase of a property can be recorded/protected depending on whether your parents will be loaning or gifting this monetary assistance. The most common options are:

Option 1: Deed of Acknowledgement of Debt

A Deed Of Acknowledgement Of Debt (with or without a registered mortgage) to record that you owe a specified amount to your parents. This debt would usually be repayable upon the property being sold.

Option 2: Co-ownership with Parents on Title

Co-owning the property with your parents and with your parents being registered as a joint owner on the record of title. The risk with this option is that your bank will usually require your parents to be co-borrowers under the loan agreement (or at the very least, guarantors) and you would have to consult with your parents when you want to sell and/or refinance.

The advantage for your parents is having some control over the property and potentially benefitting from any increase in equity over time. We would always recommend a Property Sharing Agreement in this scenario.

Option 3: Declaration of Trust

Co-owning the property with your parents, but they are not recorded on the record of title. A document called a Declaration of Trust can be entered into to record that your parents have an interest (or percentage) in the property but that the other co-owners are holding the property for the parents on trust.

Option 4: Gift as Early Inheritance

A gift to you that can be recorded as an early inheritance to ensure there are no disputes between siblings.

The Simple Option: Gifting

Most parents decide that gifting money is the most simple and straight-forward option for them and their children. Although they may not have a say or any control over the property that is purchased (besides maybe insisting on a Contracting out Agreement to protect their child's interest), at least there are no personal obligations that come with considering tax and obligations as a co-borrower or a guarantor to a bank.

Important: All parties should get independent legal advice to ensure that any proposed structure is clearly documented and explained to ensure that everyone knows where they stand and what the pros and cons of each option are before deciding on the best option to take.