10 pointers on gifting money to your children

By Ken Raiss | 09 Mar 2020

All parents want to provide for their children and hopefully create wealth to leave to them and their children, too.

These days, with higher property prices, many people also want to help their children financially so they can buy their first home or property investment.  

However, sometimes these desires outweigh practicalities, such as tax planning and potential pension impacts.

So, if you’re considering helping your children financially now, or when you’re no longer around, here are 10 pointers to keep in mind.

1.    The greatest gift is to teach them financial skills at an early age. Financial literacy will help your children achieve wealth of their own during their lifetimes.

2.    The biggest rule is to ensure you are in a financial position to maintain your lifestyle before helping your children. It is always unwise to lend money you don’t have to your children – no matter how much you love them.

3.    While there is no tax on the receipt of a gift, you do need to consider future tax implications, Centrelink pension receipts, preserving family wealth from non-bloodline relatives as well as your continued relationship with your children.

4.    In this day and age, where many relationships do not last, a financial gift should be by way of a loan, which can one day be forgiven, rather than a lump sum of money.

5.    Likewise, if guaranteeing for your children’s borrowings for a property, you should limit the guarantee to the minimal amount required. This is because, if there is a default, you could be liable for the full amount, which would likely severely impact your retirement planning.

6.    If you are on a Centrelink pension, there are rules to follow when gifting as part of the Assets Test. So, you must keep in mind that your assets will only reduce by a maximum of $30,000 every five years – with a maximum of $10,000 in any one year, no matter the size of the gift. Likewise, gifting prior to receipt of a Centrelink pension will also need to have followed these rules if within five years of retirement.

7.    If you decide to loan your children money, then this must be documented. These types of family loans can be interest-free, can simply be payable on demand, or not, and can be periodically reviewed if needed.

8.    For some people who have used trusts in their wealth creation planning then life can be simplified. That’s because a trust’s change of control doesn’t trigger taxes, so, some parents will hand over control of trusts holding assets prior to death to assist their children.

9.    You can help with grandchildren’s school fees. If given direct to the grandchild, then this can show them as financial dependents, which will allow them to receive tax-free superannuation benefits on death. However, you must check with a licensed Financial Planner to ensure both eligibility and suitableness for your specific circumstances.

10.    Another option is to create a specifically worded will. This can allow a more efficient and tax-effective distribution of your wealth to children and grandchildren to avoid the punitive 66 per cent minors tax rates and to preserve family wealth in case of a child’s divorce.

Research shows that the many Australians don’t have a will or any estate planning whatsoever.

However, by working with estate planning and wealth creation experts, they could have ensured their wishes, and their wealth, were passed on to the next generation when they were no longer around.

That’s what everyone wants at the end of the day isn’t it?

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Ken Raiss is director of Metropole Wealth Advisory and gives independent expert advice for property investors, professionals and business owners. He is passionate about real estate investing and small business and is a regular commentator for Michael Yardney's Property Update.


To read more articles by Ken Raiss, click here

Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

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