A reminder to put family loans in writing

Sophie McCann (trainee solicitor in our Litigation team), explores the case of Russell's Executor v Russell's Executrix* to illustrate what can go wrong if payments between a parent and child are not documented or clarified at the time.

*[2025] SC GLA 19; 2026 S.L.T (Sh Ct) 143.

The presumption of gifts and loans in Scots law

Financial arrangements within families are often made informally, relying on mutual trust rather than written agreements. While this may seem sensible at the time, the absence of clear documentation can create difficulties in the future if a dispute arises. Recollections may differ, family relationships breakdown, or the parties involved are no longer able to give evidence.

In Scots law, there is a presumption against gifts. Any payment by one adult to another is presumed to be a loan unless proved otherwise. The law however takes a different approach when the transfer of money is from a parent to a child. In that case, such payments are presumed to be a gift made due to natural love and affection. That presumption can be overturned but only with compelling evidence to indicate otherwise.

Russell's Executor v Russell's Executrix

The recent case of Russell’s Executor v Russell’s Executrix illustrates what can go wrong if the basis upon which payments between parent and child are not documented or at least clarified at the time. 

The case gives useful guidance as to how a court is likely to treat payments in such a situation. It is also a salutary lesson as to what can go wrong if the basis upon which payments are made is not documented or at least clarified at the time. 

In that case, a father made a payment to his younger son. More than twelve years passed without any formal request for repayment. The son died in 2023 and the father in 2024. Following the father's death, his executor (who was the older son) sought repayment from the son's estate, arguing that it was an interest-bearing loan. There was some evidence of regular payments into the father’s account, and the executor argued these represented repayments.

Evidential difficulties 

The difficulty was that there was no loan agreement or any signed documents. There was no correspondence referring to the payment as a loan or any consistent record of interest being paid. Instead, the claim relied largely on family recollections and events that had occurred more than a decade earlier

The Sheriff’s decision 

Ultimately, the Sheriff rejected the executor’s claim - finding that he had failed to prove that the payment was a loan. While there was a general presumption against gifts in Scots law, a different presumption applied when a parent provides money to a child. In those circumstances, the payment is presumed to be a gift made out of natural love and affection unless there is clear evidence to the contrary.

The Sheriff also rejected the argument that the regular payments into the father's account represented loan interest, finding there were other plausible explanations for the payment. The Sheriff also placed weight on the fact that the father did not object when the payments ceased. 

Practical lessons for families and advisers 

This case carries important lessons for families and advisers alike. When lending money to children or other family members, a simple written agreement can prevent disputed and legal uncertainty. Any agreement should clearly state the amount being loaned, whether interest is payable, when payment is due and what happens if repayments are missed.

If repayments are made, these should be recorded. If interest is charged, ensure payments are clearly identified. If circumstances change, document any revisions to the agreement. 

And if the payment is genuinely a gift, it is prudent to document that as well. Doing so will prevent any disputes down the line.

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Looking for more guidance in this area? Get in touch with Sophie to find out more.