A lot of our clients preparing for, or in retirement think about helping their children out financially. It’s especially a concern with the high costs of buying a first home, and occasionally to assist with education costs.
I actually think in terms of providing a legacy and family support, this is a far better idea than leaving money in an estate. I call it an upfront inheritance.
With life expectancy beyond the mid-80s, many estates won’t actually pass to children until they are already at or close to retirement age themselves. A lot of parents talk quite openly about the joy it brings them to see their assistance making a difference.
If it is affordable (there’s no sense in giving money away only to not be able to afford your own retirement) then I think it’s a terrific idea. There are a couple of items to consider though:
Social security / gifting
If you’re receiving an age pension payment, or will be applying in a few years, you should be aware of gifting rules.
There’s no rule that prevents you from giving your money away, but there are some rules that will treat the money as still being yours, even if you have given it away (it’s referred to as a deprived asset.)
You can find detail here at the Department of Human Services website, but the main thing to remember is the two limits that apply. Any gifts over $10,000 in a financial year will be treated as a deprived asset, and so will gifts that exceed $30,000 in total over a 5 year period.
Most gifts won’t have tax consequences – but if you’re gifting money held in investments, in a family company or a trust you should definitely seek advice as the payment could be treated as an asset sale, dividend payment or distribution which would have tax consequences.
Protecting your gift
When you’re making a significant gift it makes a lot of sense to think about the circumstances of the children who will be receiving the gift.
The two areas of concern are usually found if:
- a child is in a business or occupation which carries financial risk
- a parent is unsure of the child’s relationships, and wants to ensure gifts remain for the benefit of their children and grandchildren rather than partners
If these are areas of concern for you, it makes sense to seek some sensible advice before acting. Good legal advice can help you understand the costs/benefits of structures such as a loan compared to a gift, or using your own assets as security.
If you’d like to know a bit more about this topic, or for a referral to a good solicitor who can help with the legal details, give us a call on (02) 6247 1233 or you can email firstname.lastname@example.org.
(photo credit: flickr user dadblunders)