With property markets rising at a faster pace than normal in 2021 we have seen an increase in parents gifting money to their kids to get into their first homes. In fact, my wife and I have recently helped one of our kids to increase their deposit.
Many years ago, I heard of a case where a father gifted his daughter over $500,000 in the form of a house which is incredibly generous. Unfortunately, a few years later the daughter split from her then-husband and guess what? The husband received half of the gift the father intended for his bloodline. Ouch!!
To protect the above the father could have asked his lawyer to draft a loan agreement for the daughter to sign. What this achieves is in the event of the above transpiring the father could have recalled the loan first before the property settlement was assessed.
The biggest problem with the above is having a conversation with your child and their partner. Considering 1 in 2 marriages end in divorce it is a fair decision to protect your capital.
Also, remember if you are of age pension age there are strict rules around how much you can gift. Current rules allow for $30,000 to be gifted over a 5-year period. Additional assets gifted will be assessed under the asset test.
Talk to your Financial Adviser or Solicitor if you are considering gifting assets to your children to find out how it may impact your financial situation.
Stephen Lowry (CFP® Professional, DFP, AIF®) is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
Note: This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.