As property prices and borrowing challenges persist in Australia, more families are turning to guarantor loans – commonly referred to in the media as the ‘Bank of Mum and Dad’ – with brokers reporting significant growth in parents providing guarantees to help children enter the housing market. Many parents agree to guarantee a loan for a child or other family member as a practical way of helping them get ahead, often to buy a first home or support a business venture.
What is less commonly understood is that a guarantee doesn’t just affect you during your lifetime. It can also have significant consequences for your estate, and for how fairly (or unfairly) your assets are distributed after you die.
What does it mean to be a guarantor?
When you act as a guarantor, you promise the lender that if the borrower cannot repay the loan, you will.
If the guarantee is ever called upon, you may need to use your own assets to meet the debt; or if you have died, your estate may be required to pay it. From a legal perspective, that payment is treated as an estate liability, even though it effectively benefits the borrower.
Warning for executors
A further complication is that a guaranteed debt may not crystallise until years after the will-maker’s death. Even if the borrower is meeting repayments at the time of death, the guarantee remains in force, and the estate can still be called upon if the borrower later defaults. For this reason, an executor may be required to retain or set aside estate funds to meet a potential future claim under the guarantee, rather than distributing the estate immediately.
If an executor distributes the estate without making adequate provision for a contingent guarantee liability, and the guarantee is later enforced, the executor may be personally liable to the lender to the extent the estate no longer has sufficient assets to meet the debt.
Why this matters for your Will
Most Wills divide assets between beneficiaries on the assumption that:
- the estate consists of assets the will-maker owned; and
- liabilities are limited to ordinary debts and expenses.
A guarantee breaks that assumption.
If your estate pays out under a guarantee for one child, that child has received a real financial benefit – their debt has been reduced or eliminated. However, unless your Will deals with this specifically, the payment may simply be treated as an estate expense, that is, a cost, liability or outgoing that must be paid out of the deceased’s estate in order to properly administer the estate and discharge the deceased’s legal obligations.
A common (and unintended) outcome
You have two children and intend to divide your estate equally. You guarantee one child’s home loan. After your death, the bank calls on the guarantee. Your estate pays $300,000. Unless your Will says otherwise, the remaining estate is divided equally – meaning both children bear the cost, even though only one benefited.
How estate planning can deal with guarantees
A well drafted Will can treat any payment made under a guarantee as a benefit to the relevant beneficiary and adjust that beneficiary’s inheritance accordingly. This allows the Executor to take the guarantee into account when dividing the estate, so that your overall intentions about fairness and balance are preserved.
When should you review your estate plan?
It is worth reviewing your Will if you:
- have guaranteed a loan for a child or other family member;
- are considering acting as a guarantor in the future; or
- have a Will that was prepared before the guarantee was given.
How we can help
At ADLV Law, we regularly review estate plans for parents who have supported family members through guarantees, gifts or informal arrangements. If you’ve acted as a guarantor – or are thinking about it – a short review now can prevent unintended consequences when you die. If you would like assistance, please contact us on 1300 654 590 or email us to discuss your situation.
The information contained in this post is current at the date of editing – 13 January 2026.
