Helping kids the right way

This article was written for our clients with adult children however the concepts extend to anyone wishing to assist a loved one financially.

With the price of houses having risen in the last decade much more quickly than average wages, and financially challenging life changes such as divorce more common, we are seeing more and more clients who wish to assist their adult children financially.

Gone are the days where financial support ended with high school, and Uni was funded by the Government. Now financial support is extending into middle-aged children and onto the next generation of grand-children.

Now we are routinely seeing families helping their kids with: -

• Home deposits
• Renovations to help expand a family home
• Helping with school fees for grand-kids
• Helping provide for the costs of divorce
• Gifting an old family car to your children, and replacing with a smaller fuel-efficient retirement car (or a Landcruiser for touring Australia in retirement!), so no trade-in.

To ensure that gifts of money, and the assets they help purchase such as houses, are retained by the family it is important to plan ahead for possibilities like: -

• A future relationship of your child – new partner
• A breakdown of an existing relationship
• Death or disability
• Bankruptcy of your child, their partner, their children – especially if self-employed

Many people do not realize how quickly existing assets of your child can be ‘claimed’ by a new partner, even ex-partners, and in bankruptcy situations, if gifts and loans are not properly documented to protect your gift.

A common strategy is to treat gifts as a LOAN even if you don’t truly expect or want that money back in ordinary circumstances.

Using an example of helping with a home deposit, you could have an unregistered loan agreement with your child so that you can secure back for your family that amount in the event of a later relationship issue with a child’s partner.

For this to be enforceable you need to meet important criteria in the documentation and maybe even ideally have a trail of a yearly “repayment” in order to solidify your case, depending on your circumstances.

Then, you need to consider the implications for your estate – are other children also receiving an equal gift? Or will you adjust for this gift at the time of your passing? So does your Will need to be updated to be fair to the other children? Upon your passing is the loan forgiven or due for immediate repayment? Is your executor and your Powers of Attorney aware of the loan and your intentions?

Taxation advice should also be obtained.

Gifting to children with specific vulnerabilities such as mental health challenges or physical disabilities provides another layer – you don’t want them to lose their status with Centrelink and reduce their income payments and access to Health Care Cards.

GUARANTEES are another strategy however these are more problematic for a variety of reasons, starting with banks being more likely to lend excessively knowing they have extra security, and risking your assets you have worked hard to build.

If you have thought about helping out your loved ones financially it is best to seek advice on a more global scale from us, we can:-

• Determine what you can afford before it impacts on your position, and where some of the gaps are in your position and your child’s position,

• Assess the risks for you and the risks in your child’s position that should be fixed before proceeding,

• Refer you to appropriate legal advice, and possibly tax advice.

As part of your Annual Planning Meeting we can help you set in place a strategy around affording and implementing such gifts and loans.

In an example for one of our clients who initially wanted to retire ASAP, once we established that he could afford to retire, he changed tack and worked for another 2 years to save money for his kids so that one day he will be able to help them with a deposit. His whole view of work and why he was there changed once he knew he had the freedom to leave if he wanted to.

Contact us to know what’s really possible on Ph: (03) 9349 1525.