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Importance of a loan agreement between family members

Ling and her husband were both in their 70s when her husband became critically ill. Because Ling wanted to support her husband through this difficult time, the couple purchased a property close to the hospital. A few months later Ling’s husband passed away and Ling made the decision to sell the property.

Ling decided to distribute the sale proceeds between herself and her children, with each child receiving $100,000 to put towards a deposit for a house. Ling planned on traveling locally and internationally and agreed to live with her daughter, Mei, when she was in New Zealand. Ling and Mei began planning to purchase a property. They agreed that Mei would be able to rent out Ling’s room as an Airbnb while she was away, to help with the mortgage repayments.

They found a property they liked and approached a mortgage broker to assist them with obtaining a loan.

Mei struggled to secure funds for her contribution towards the deposit. Ling was prepared to gift Mei the agreed $100,000, but Mei required an additional $50,000 on top of this. Ling agreed to loan Mei the additional $50,000 on the condition that Mei pay the loan back once she was earning enough to do so (likely in two years).

The broker secured a loan offer from a lender, but the lender required the full amount to be gifted, despite the mutual understanding that Ling was only gifting $100,000 and the other $50,000 was a loan.

Ling said that the broker explained that the lender would not accept a loan arrangement between Ling and Mei for the additional $50,000 and that Ling had to sign a Deed of Gift for the full $150,000 to qualify for the home loan. Ling said that she told the broker that she was not happy with this arrangement, but said the broker undertook to prepare a Deed of Family Affairs (DOFA) for the loan amount, recording that the $50,000 would have to be repaid by Mei. Ling was satisfied with this and signed the Deed of Gift.

Unfortunately, Ling and Mei’s relationship deteriorated, and Ling moved in with her son, Jin. Ling and Jin discussed the possibility of purchasing a house together and Ling raised the issue of Mei repaying the $50,000 loan. Mei’s lawyer replied to Ling’s request and said that there was no loan and that the Deed of Gift was proof that the full $150,000 was a gift to Mei.

Ling sought her own legal advice. Ling’s lawyer pointed out that, despite Ling seeing two lawyers at the time the agreement was made and them noting that there should be a document recording the $50,000 as a loan, nothing was prepared.

Ling’s lawyer said that a DOFA would not have been the right document because a DOFA is a legal document which effectively varies a person’s last will. Most commonly, it would record the settlement of a dispute between estate beneficiaries or a change in how estate assets would be distributed.

Ling’s lawyer further explained that, although a DOFA would have been the incorrect document, it would have been written proof that the $50,000 was a loan and not a gift.

Ling contacted the broker and requested a copy of the DOFA. Although the broker remembered a discussion about the loan, she could not recall a discussion that she would prepare a DOFA and told Ling that she did not have such a document on file.


Ling complained to FSCL. ling said that she was unable to prove that the $50,000 loan was in fact a loan, because the broker had failed to prepare a DOFA. Ling said, shortly after signing the documentation to purchase the property, she had a nervous breakdown, and it never crossed her mind to check that the DOFA had been drawn up.

Ling further said that she was 79 years of age at the time the loan was obtained and felt that she was misled by the broker to believe that the broker would draw up a deed of family affairs and that would be sufficient to prove that the $50,000 payment was a loan.

Ling felt that the broker’s negligence deprived her of the opportunity to claim that the $50,000 loaned to Mei was in fact a loan and not a gift.

To resolve her complaint Ling wanted the broker to compensate her for the $50,000 that she had lost.

The broker said that it was Ling’s responsibility to arrange her family affairs and seek independent legal advice to ensure her loan was protected. The broker also referred to an email where she confirmed that she spoke to Ling and Mei’s lawyer and that everything was on track for them to arrange a meeting with the lawyer.


Although we had sympathy for Ling’s situation, there was no evidence that the broker represented that she would prepare a DOFA for Ling. The reference in the broker’s email to Ling around a DOFA/deed of gift did not amount to an undertaking from her to prepare a DOFA.

We explained to Ling that it would be most unusual for a broker to offer to draw up a DOFA, as this process relates to deceased estates and falls outside the scope of the services typically offered by a financial adviser. A DOFA would need to be prepared by a lawyer.

We were satisfied that Ling had the opportunity to obtain legal advice, at the time the money was given to Mei, to inform her of the importance of having a loan agreement with her daughter and she opted not to have one drawn up.


We found that the broker was not the cause of Ling’s financial Loss. It was clear that Ling’s loss was caused by Mei refusing to acknowledge that part of the money ‘gifted’ was in fact a loan and it would not be fair to hold the broker liable for Mei’s refusal to pay back the money that she has used.

In conclusion, we decided that Ling should discontinue her complaint.

Insights for consumers

This was a sad case highlighting the risk of parents advancing money as a loan to their children on the mutual understanding that the loan will be repaid. This case serves as a reminder of the risk, and the importance of parents protecting themselves and their assets, by getting independent legal advice and making sure they document all agreements, even if the agreement is with their own children.