It often starts with good intentions. You set up trusts, lend money to family members, or build layered structures to protect assets and help the next generation. On paper it all looks fine. But over time, what was meant to safeguard wealth can turn into a tangled web that quietly puts everything at risk.
The danger is not obvious until it is too late. Informal family loans are never repaid, trusts own shares in companies, and no one is entirely sure who owes what. When the time comes to sell an asset, refinance, or pass things on, the mess surfaces. Instead of preserving wealth, the structure drains it.
We see this often. Family members assume loans are gifts, while your accounts show them as debts. Poorly tracked loans distort cashflow and limit bank lending capacity. Missed or mismatched entries undermine your tax position. When repayment is expected but never happens, relationships come under strain. What began as a way to protect the family ends up eroding both wealth and trust.
The answer is not to avoid family loans or complex structures. They can be powerful tools when managed well. The key is clarity and discipline. That means documenting all loans with clear agreements, terms, and expectations. Reconciling balances regularly so surprises do not build up. And holding family meetings with professional advisors to make sure everyone is on the same page.
People often say, “It’s family, we don’t need to formalise it.” In reality, the opposite is true. Clear agreements protect relationships by removing ambiguity. Formal does not mean unfriendly. It means everyone understands the rules and feels respected.
Family wealth is fragile when it is built on assumptions. The families who do well are the ones who pair generosity with accountability. They treat wealth transfer as seriously as business decisions, which keeps both the money and the relationships intact.
Case Study: When Family Loans Unravel
Background
John and Mary owned a farming business worth around $6 million. The family trust owned the land and buildings, while a separate company leased the farm and carried out the day-to-day operations.
Over the years, the family trust advanced money to their children to help with equipment, property deposits, and small businesses. These advances were never properly documented. In the trust accounts they appeared as “loans to related parties,” but within the family they were seen more as casual support.
How We Identified the Problem
During a review of the trust and company financials we noticed over $600,000 in loans to family members. The amounts did not line up with John and Mary’s recollection of what had been given, and each child had a different view on whether the money was a loan or a gift. The bank questioned the balances, as they weakened their ability to borrow for capital projects. It became clear that the structure was creating confusion and risk instead of protecting wealth.
How We Fixed It
We began by creating a clear schedule of all family advances, confirming who received what, when, and how it was recorded in the accounts. Together with John and Mary and their solicitor, we decided which advances should remain as loans and which should be treated as gifts.
For the loans, formal agreements were prepared that set out terms and repayment expectations. We also reviewed the wider structure. The trust remained the landowner and the company continued as tenant and operator, but we simplified the reporting so that the flow of money between entities was clearer and more transparent. Finally, we facilitated a family meeting where everything was explained and agreed on.
The Outcome
The bank regained confidence in the family’s financial position, which made future borrowing easier. The children left the meeting with clarity on their obligations and confidence that things were fair. John and Mary felt a weight lifted, knowing that their farm, their wealth, and their family relationships were on a much stronger footing.
If you have family loans, trusts, or multiple entities in play, now is the time to review them. Untangling complexity early saves stress later. We regularly help clients restructure these arrangements so they preserve wealth and strengthen family ties. If this feels close to home, let’s have a conversation.
Contact Us
Contact us today to discuss on 07 827 9130 or email us. Our office is in Cambridge, NZ, but distance is no problem. We have many international and national clients.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
