Misusing the bank of mom and dad

“My brother convinced our dad to fund a business venture. Dad had been a smart business person in his day, but his mental abilities have been declining for years. Turns out my brother’s business was a sham. He used the money to buy a condo and a sports car. He now insists the money from Dad was a gift.” 

– Jason, North Vancouver, BC

Misusing the bank of mom and dad can take many forms. Here are five common scenarios.

• Borrowing money. An adult child borrows money from their parent and doesn’t pay it back, claiming it was a gift, or an advance on their inheritance.  

• Guaranteeing a loan. An adult child pressures their parent to guarantee a bank loan.

• Applying pressure for something valuable. An adult child pressures their parent to buy or give them something valuable, such as a car the parent isn’t able to drive anymore.

• Applying pressure to remortgage their home. An adult child pressures their parent to borrow money against their home, to help out the adult child financially.

• Applying pressure for an early inheritance. An adult child pressures their parent to give them an “advance” on their inheritance. 

In all of these scenarios, the adult child is misusing or trying to take what belongs to the parent. As such, they are a form of financial abuse of an older adult. Like other forms, the abuse is carried out by someone the older adult knows and trusts. 

Often, complex family dynamics are in play. The parent may be (understandably) motivated by wanting to help their child. Or to show confidence in them. Or fearful that if they don’t go along, the child will cut off contact with them, or with grandchildren.

The impact of financial abuse can be devastating. The money or property lost may represent a lifetime of work and saving. Older adults are generally less able than younger people to rebuild a nest egg after a setback. And older victims of financial abuse often experience other impacts more deeply, such as shame and embarrassment, a loss of independence, and a decline in physical and mental health.  

Often, when a parent gives money to an adult child, they don’t document the arrangement. The parent may just think documentation isn’t necessary. Or they may fear that insisting on documentation (such as a loan agreement or promissory note) will insult their child, as it might suggest a lack of confidence in them. 

From the child’s perspective, they might see no benefit to documenting a loan. They may even be counting on the forgetfulness or weakness of the older adult to avoid repayment.   

Without putting the understanding in writing, there’s a greater chance for a disconnect. The child may later claim the arrangement wasn’t a loan but rather a gift or an early inheritance. This can make it harder for the parent to get repaid. 

But not impossible. There are two legal principles that can help support the parent in saying the money should be repaid. 

When a parent gives money to their adult child and the two parties disagree about whether it was a gift or a loan, there are two legal principles that can help mom and dad make their case for a repayable loan.

The law presumes a loan rather than a gift

First, when an adult child receives money or property from a parent, the law presumes it to be a loan rather than a gift. It’s still open to the child to show that a gift was intended (so the law says this is a rebuttable presumption). But the onus is on the child to do so.  

(By contrast, if a parent gives money or property to an underage child, the presumption is reversed. The law presumes it to be a gift. This is again rebuttable, with proof to the contrary.)

The parent can argue unjust enrichment

The parent can lean on another legal principle to support an argument the money should be repaid. It’s called unjust enrichment. It’s a type of legal claim. One party argues the other has been enriched at their expense, and so should make restitution to them.

To succeed, the parent need show three elements:

1. the adult child received an enrichment,

2. to the detriment of the parent, and

3. there is no good reason in law for the child to keep the money.

When these three elements are shown, the right to restitution arises from this unjust enrichment. Here’s a case where this happened, involving money given by a parent to her daughter to help buy a house. The court found the daughter was unjustly enriched and ordered the daughter and her husband to repay the money.

A parent thinking of pursuing a legal action should be aware that the law in BC creates a time window to sue. Once this window, called a limitation period, has passed, it’s too late to start a lawsuit. 

The general limitation period in BC for starting a claim is two years from discovering it. The law recognizes that informal lending arrangements between family and friends can run over many years. So for these types of “demand loans,” a special discovery rule applies that can help mom and dad. A claim is said to be discovered once the lender (the parent in our scenario) demands repayment and the borrower (the adult child) fails to repay. The parent has two years from that date to sue.

(Note that for a loan made before June 1, 2013, a different limitation period applies. As described in this case, the lender has six years to sue from when the loan was made.)

If you’re helping an older adult deal with abuse, these guiding principles provide some best practices. You can start by talking with the older adult about their experience. Ask questions. Listen. Honour their independence as much as possible. Work with them to identify solutions and support networks that suit their values. 

If there is disagreement about whether money a parent gave to their child was a gift or a loan, the ideal is to talk things through. That’s the best way to preserve relationships, which can be worth even more than the money in dispute. Calling a family meeting can be a good way to encourage discussion. 

If talking doesn’t resolve matters, you can send a letter. Set out what you want, the context, and your legal arguments (see above, under what you should know). Always keep a copy of any letters or documents.

When an adult child doesn’t pay back money they borrowed, many parents are very reluctant to take them to court. Doing so could cause considerable shame about airing grievances in public.  

One alternative is mediation. Unlike going to court, mediation is private and confidential. A mediator will facilitate a conversation between the parties to help them resolve the dispute. Mediators are impartial and will not make decisions for you. Professional mediators are trained to help resolve legal disputes. Mediators do not take sides and they don’t decide the case.   

Another option is collaborative elder law. If both parties are willing, they each retain a lawyer who is committed to resolving the dispute without resorting to legal proceedings. All parties (including the lawyers) agree to share all information and documentation with each other, and negotiate to reach a settlement. If either party commences legal proceedings, their lawyers have to withdraw. 

If matters remain unresolved, the next step is to consider legal action. Where you bring a lawsuit depends on the dollar value of the claim.

Claims for up to $5,000 must usually be taken to the online Civil Resolution Tribunal. This tribunal is an online system people can use without the help of a lawyer. Note that mediation is part of the process at the tribunal.  

For most disputes worth between $5,000 and $35,000, the case can be brought in small claims court. This court is also designed for people to act for themselves. Mediation is also part of the process at small claims court. 

Claims for more than $35,000 generally go to the BC Supreme Court.