Family lending occupies a unique space where legal obligations meet family relationships, where financial protection intersects with emotional connections, and where good intentions must be backed by proper structures to achieve their desired outcomes.

The Bank of Mum and Dad - New Zealand's 6th largest bank

The $22.6 billion in family lending occurring across New Zealand each year represents an extraordinary transfer of intergenerational wealth, providing opportunities for young families that would be impossible through traditional lending channels alone. Yet too much of this lending occurs informally, creating risks that families don't discover until relationship breakdowns, estate administrations, or government assessments force these informal arrangements into legal scrutiny.

The good news is that protecting yourself and your family doesn't require expensive legal processes or complex documentation. A clear written agreement that addresses the essential elements (loan amount, repayment terms, interest provisions, security arrangements, and estate planning intentions) provides the vast majority of the protection you need.

This isn't about distrust or assuming the worst of your family members. It's about providing clarity when circumstances change in ways none of you anticipated. It's about ensuring that your generosity achieves its intended purpose without inadvertently benefiting the wrong people or disadvantaging yourself. It's about treating everyone fairly, both the children you're helping today and any children you might help in the future.

Start with an honest conversation about whether the transaction should be a gift or a loan. If it's a loan, commit to treating it as such by documenting it properly, requiring at least token repayments, and maintaining records throughout its life. Consider the relationship property implications if your child is in or may enter a relationship. Address the tax consequences, particularly if you're within a decade of potentially needing government support. Think through how the loan should be treated when you pass away, and ensure your will reflects your intentions.

Most importantly, don't let concern about formality prevent you from protecting what you've worked a lifetime to accumulate. Your family will appreciate the clarity proper documentation provides, particularly if circumstances become difficult. The small investment in time and potentially legal costs to formalise your family loan properly is insignificant compared to the amounts at stake and the family harmony that clear expectations can preserve.

Whether you're lending $20,000 for a car or $200,000 for a house deposit, the principles remain the same: document it clearly, treat it consistently, and plan for the future. Your family, your finances, and your peace of mind all deserve this protection.

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