OverSixty April 2023 Digital

OVERSIXTY.COM.AU | ISSUE 4 | APRIL 2023 15 YOURMONEY Pros and cons of gifting to your children !e "rst decision is to ascertain whether this money is a gift or a loan PATRICIA HOWARD YOUR MONEY W hile it’s tempting to help a grandchild buy a car or provide a deposit for a loved one to buy their !rst home, for those in retirement, it’s important to think through the pros and cons of givingmoney to anyone, much less a family member. "e so called ‘Bank of Mum and Dad’ is estimated to be collectively worth about $35 billion, making it the ninth largest mortgage lender in Australia, according to independ- ent analysts, Digital Finance Analytics. "ey estimate parents are giving on aver- age about $90,000 per adult child, to con- tribute towards buying a home, almost all of which is done on an unregulated basis with no o#cial controls or oversights. Parents are free to give their children and grandchildren as much money as they like. "is is usually done on a tax-free basis, al- though if an asset is sold to generate the funds, there may or may not be a tax obliga- tion incurred on the sale of that asset. Anyone who receives an age pension though, should be mindful that the Australi- an government has strict rules governing just howmuch money can be given away as a gift before it impacts on a person’s age pension entitlements. Centrelink’s rules allow for age pension- ers to gift up to $10,000 a year and $30,000 in total across a !ve-year period without it impacting on that person’s age pension enti- tlements."ese rules are the same regardless of whether you are single or part of a couple who is providing the gift. Any sums of money that are given away above these amounts will be included for the next !ve years as part of your assets test and income tests and will be deemed in line with the other assets you hold. So, depend- ing on how much money you give away, you may face a signi!cant drop in your pension payments. "ere are a number of exceptions to this rule. For instance, if you gift your home to a child in return for a life interest in a gran- ny %at on the property; or if you gift up to $500,000 to a Special Disability Trust estab- lished to provide care for a child; or if it’s part of a transfer of a farm from one generation to the next, the gifting rules will not apply. Each of these exceptions is complex though and should be discussed thoroughly with Centrelink before any action is taken if it is important you preserve your full Centrelink entitlements after these changes aremade. Nonetheless, parents will always want to help their children and for many, the over- whelming thought is that their children will eventually receive the funds when they pass on, so they may as well gift the funds now, when their children really need it. "is urge to help children get ahead !nan- cially has been spurred by the dramatic price rise in property values in most Australian capital cities and the prevailing thought that if parents don’t help out, then their children will never be able to a$ord to buy a home. However, it is important for anyone in re- tirement to think twice before they do gift money to children, particularly if it is a large amount of say $100,000 or more. "e !rst decision is to ascertain whether this money is really a gift or is it a loan? It is easy to start out thinking it’s a gift or that your children will eventually repay the loan when they can, but if this is not formally stated in a loan agreement, this may never happen. "is is most commonly played out during divorce proceedings, where the parent of one child may argue the funds, that were extend- ed to be used as a deposit to help buy a prop- erty, were really a loan and should be repaid when that property is sold. Continued on page 16 Our !nance expert looks at some of the rami!cations of being the ‘Bank of Mum and Dad’ While we all want to help out our children, it’s important to be aware of the implications of gifting to family members Photo: Patricia Howard YOUR MONEY About the author  Patricia Howard, author of The No- Regrets Guide to Retirement: How to live well, invest wisely and make your money last (Wiley), is a licenced Australian financial adviser. She has a Commerce Degree, holds an Australian Financial Services Licence and recently passed the FASEA Financial Adviser exam. Visit her at www.patriciahoward.com.au