With Australians living longer and the cost of retirement on the up, deciding whether to help children out financially can be a conundrum for some parents.
On the one hand, you need to make sure your retirement savings will go the distance, and on the other hand, you may want to help your children get ahead.
Whether you’re contemplating a financial gift or loan, purchasing a property together, or going guarantor on a home loan, there are risks to be aware of, and these risks require careful consideration.
There are, however, a few ways that you can help protect yourself (and your children), and one of them is to legally formalise your financial arrangements.
While this may seem a bit unnecessary, the reality is that things can and do go wrong—relationships break down and family fallouts happen. Putting in place legal arrangements now while everyone is on good terms can be easier than trying to solve any issues when circumstances change and emotions are running high.
Family Lawyer, Bhavesh Mistry, outlines three options that could help with protecting your finances—and your relationship with your nearest and dearest.
Option 1: A formal loan agreement
If you’re considering loaning money to your children and want to reduce any potential impact on your own retirement lifestyle and/or legacy to your children, a formal loan agreement that sets out the terms of the loan might be worth considering.
Option 2: A co-ownership agreement
If you’re thinking about buying a property with children, you might consider putting a co-ownership agreement in place for some protection and peace of mind. A co-ownership agreement is a legally binding document that sets out the rights and obligations of each owner, and can help provide certainty around how any potential future issues may be dealt with—in the event they were to arise.
Option 3: Establishing a Family Trust
Setting up a discretionary trust means that any funds or assets you are intending to transfer to your children are held ‘on trust’ for your benefit and the benefit of your children. As parents, you can become the trustees, and your children become the beneficiaries. This allows you to retain control over the money, and transfer capital and income to them over time, or by way of a loan as you see fit.
Some final thoughts
All of these arrangements may have implications for your personal wealth position, tax position and / or Centrelink entitlements.
Entering into a financial arrangement with children can be a big deal. Before you make any decisions around which (if any) of the above options may work for you and your family circumstances, it’s important to seek professional advice.
This article was adapted from the Financial Knowledge Centre. You can access the full article here.
This information is intended for educational purposes only, and does not take into account your objectives, financial situation and needs. For further information or clarity on anything that has been discussed in this article, please consider seeking qualified and professional advice.
Photo by Matt Bennett on Unsplash
The Wealth Mentoring Group 