Mother loses appeal for loan reclaim from son’s estate

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The Financial Reporter highlighted an interesting recent court case where a mother lost out on the reclamation of an outstanding loan when her son died because of a lack of evidence.

The claimant had lent her son £170,000 in 2005 in order to allow him to buy a property. Later that year, he was able to repay her the sum of £90,000. He was diagnosed with mesothelioma in 2010 and received more than £350,000 in compensation. When he died in 2016, however, it was found he had not left anything in his will for his mother and the estate was passed to his wife and various charities as per the instructions in his will.

His mother made a claim for the outstanding balance of the loan to be repaid from the estate. The first judge found that the claimant had not proved there was any amount still to be repaid, and that even if the £90,000 her son gave back to her as part of the loan, the balance of the money was regarded as a gift. The judge also rejected the allegation that the son had made interest payments and confirmed that the presumption of advancement applied in this case.

Court of Appeal

The claimant took her case to the Court of Appeal and in December, their decision upheld the original decision from the case heard in June of this year. They confirmed that the original judge was entitled to dismiss the mother’s claim on the ground that there was a lack of evidence showing the sum was meant as a loan and not a gift.

According to the Financial Reporter, the case should serve as a warning to the many parents who lend their children and grandchildren money on an informal basis. They quote a report from Legal & General earlier in 2019 that found the ‘Bank of Mum and Dad’ would equate to the equivalent of £6.3 billion in mortgage loans this year. The report showed people aged 35 and under relied on their parents for financial assistance more than any other age group, more than 20 percent of 45-54-year-olds had also relied on their parents for help to buy a property.

Michelle Chapman, a solicitor at Irwin Mitchell, told the Financial Reporter, that the case acted as a cautionary tale for well-meaning family members who wanted to help their relatives—they needed to ensure loans were carefully documented.

Presumption of advancement

The presumption of advancement is a little known legal principle that puts special emphasis on certain relationships including those between spouses or parents and children. In such circumstances, unless there was evidence of something else, the presumption is that a transfer of property between the parties was a gift and not a loan.

She said her firm advised anyone in a similar position to document their loan agreements properly before making payments and to consider how the terms could be enforced, especially if a relationship broke down or where someone died.

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