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Why loans and gifts need to be documented

By Andrew Steele - 22 Aug 2017

The Court of Appeal in Chang v Lee [2017] NZCA 308 addressed the situation where a generous uncle funded 50% of the purchase price for his niece to buy a property. She took title in her own name, then denied the uncle's right to repayment saying the 'advance' was a gift. No loan agreement had been entered into between them. The Court of Appeal held that where a person makes a payment to another to buy a property, there is a presumption against a gift. Instead the property is held on trust for the funder in the share of the sum they contributed.

We underline the word presumption. This is because presumptions can be rebutted either by the existence of an agreement as to a loan or where the transfer of funds was between parent and child, where there is a presumption of a gift (called the presumption of advancement). In the result, the niece was deemed to hold the property under a resulting trust in favour of her uncle to the extent of 50%. The property was ordered to be sold and the fund divided between the parties.

The moral of the story is that when advancing funds, especially within the family, seek legal advice and document the arrangement formally, so there are no unpleasant surprises.

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