Beware the perils of informal family arrangements

Disagreements arising from family deals seem to be on the rise. Discussions about what happens after someone passes away or arrangements about loaning money or transferring assets often happen informally within families. While these arrangements are usually made with good intentions, they involve significant risk and can lead to disagreements if things go wrong.

Basic requirements for the formation of a contract in Scotland are: (a) the parties have reached an agreement on the essential terms of the contract; and, (b) there is a clear intention to create legally binding obligations.

The test for whether there is a legally binding contract is objective – not whether the parties actually thought there was a deal, but instead whether the reasonable person examining the conduct of the parties would conclude a legally binding agreement had been reached. Whilst agreements do not necessarily need to be in writing, it’s always better they are.

​Dylan Mitchell is a Senior Solicitor, Balfour+Manson

A recent Court of Session ruling on Louise Davies v Lorna Cassie serves as a stark reminder of the potential dangers of informal family agreements (in this case, regarding property) and how these arrangements can lead to costly legal battles where the terms are unclear or disputed.

Lorna Cassie was the sister and executor of the late William Cassie. Louise Davies raised an action against the estate, claiming the deceased promised his estate or most of it would pass to her when he died. However, Mr Cassie died without a Will and that did not happen.

The Court ruled that a promise of this type can in principle be legally enforceable, but not unless the intention and specific words used by the promisor are clear and unambiguous.

While informal family agreements are often made with trust and goodwill, they carry significant risks. In a social or familial context (unlike a commercial context), there is no presumption in law that an arrangement was intended to be legally binding – this must be proven on the evidence. Without clear legal documentation, parties may be left vulnerable to misunderstandings, disputes, and potential claims. Some key dangers include:

Ambiguity of Terms: Informal family arrangements often lack specific details or clear terms. This can lead to confusion about what was agreed, especially when the arrangement is not recorded in writing. If a dispute arises, it can be difficult to establish the exact nature of the agreement and therefore render it unenforceable.

No Legal Protection: Without a legally binding contract, there is no formal mechanism to enforce the arrangement. This means that if things do not go as planned, you may have limited options for seeking redress through the courts.

Emotional Fallout: When they go wrong, family agreements can lead to deeply emotional conflicts. Without clear documentation and legal oversight, disagreements can escalate, leading to family tensions and even costly legal battles that can seriously harm relationships.

These risks highlight the importance of obtaining legal advice before entering into family arrangements. Whether they concern property transfers or making gifts or loans, by seeking professional assistance you can ensure: an agreement is clear, well-documented, and legally binding; you understand the potential tax implications; and you have proper protection in place should the arrangement break down or become contentious.

Taking the time to seek legal advice ensures that your arrangements are clear, enforceable, and free from unexpected consequences. Don’t leave your family arrangements to chance: take professional legal advice to protect your assets and your family’s future.

Dylan Mitchell is a Senior Solicitor, Balfour+Manson