27 February 2024

Giving while living: The benefits of sharing your wealth with the kids now

| Katrina Condie
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Chris Oates

RSM Financial Services Australia’s Canberra financial adviser Chris Oates. Photo: Thomas Lucraft.

If you can afford to help your kids or grandkids pay off their student loans, start a business or get into the property market, one Canberra finance expert says there’s no need to wait until you retire.

According to RSM Financial Services Australia senior financial adviser Chris Oates, there are benefits to sharing your wealth with your family in your late 50s or early 60s, and many people are doing just that.

Gifting money to your kids at a time they most need it can give them a leg-up into the property market, help pay off debts or kick-start their dream businesses and, if you hand over the money five years before applying for the aged pension, the transaction won’t impact your Centrelink benefits.

Chris said anyone with significant savings or who has come into an inheritance may want to help their kids but might not know how to go about it.

“One burning question many clients ask when it comes to wealth transfer is, ‘Should I give money to my children while I’m alive, or leave it for them in my estate?'” he said.

“This depends on individual circumstances, including the nature of your assets and the legacy you want to leave.”

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He said some people were happy to hand out the cash straight away, while others preferred to save it for their retirement, put it in a trust fund or leave it to their kids in their will.

“We all want to help our kids out, but when you gift them money, and how much, really depends on your individual financial position,” Chris said.

“Most people are older – retired or approaching retirement – when they receive an inheritance, and they want to ensure they have enough money to live on into the future.

“They may choose to pay off their own mortgage, travel and set themselves up for a comfortable retirement.

“However, if they are in a position to gift the money sooner rather than later, there are many benefits for the giver and the recipient.”

Chris said, for example, if a couple with two kids received a $200,000 inheritance, they could give $30,000 to each child immediately and make a significant difference to their lives.

“That $30,000 could go a long way towards helping the kids buy their own home or pay off their debt right now,” he said.

“When you think about it, in 20 years’ time, that $30,000 is not going to go as far because property prices will have increased and the cost of living will have gone up.

“Kids paying off student loans over that 20 years will have racked up interest and, during that time, they could also have difficulty obtaining a home or business loan with that debt.

“For most of us, our goal is to put our kids in a better position than we were, so people need to consider if the money would make more difference for their kids today than it would in 20 or 30 years’ time.”

Chris said giving kids or grandkids their inheritance while you’re still alive also meant there would be no quarrels after death, and no opportunity for family members to contest the will.

“Giving while living ensures the money goes exactly where you want it to go and reduces the risk of your legacy being eaten up in legal fees if the will was to be contested,” he added.

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Because you’re gifting the money, and it’s not classed as income, there are no tax implications for the giver or the recipient.

However, if you chose to invest your inheritance in property or shares or crypto assets, tax would potentially be payable if and when those assets were gifted to the kids.

“The transfer of assets will trigger capital gains tax and potentially stamp duty,” Chris said.

Anyone who is approaching retirement and plans to apply for the aged pension within five years must keep in mind that any monetary gifts will be assessable and could impact their Centrelink payments in the future.

“If you keep the money, you may not be entitled to the aged pension, and if you give away more than $10,000 in one year or $30,000 over five years, it could impact the pension you receive,” Chris said.

“If you’re 60 years old and want to share your wealth, it makes sense to gift it now; then, by the time you get the aged pension, it will no longer be included in your assets.”

Some people choose to hold onto their entire inheritance to live off into retirement, but if that money goes on to produce an income, for example, bank interest, then this will become part of their assessable income.

Chris said that before making any decisions about sharing an inheritance, it was best to “park the money”, take a breath and speak to a financial advisor about how to manage it in a tax-effective way.

“The thing we look at when someone gains an inheritance is setting goals,” he said.

“How do you want your assets to be transferred? Do you want money set aside for the kids, and if so, how much for each child, and how much do you need right now?

“From a financial planning perspective, the amount of money you have has got to be in excess of what you need before you give it away. You don’t want to reduce your lifestyle so much that it impacts how you enjoy retirement.

“It is a hard juggling act because we want to be able to help the kids out, but you don’t want to have to start scrimping and not doing what you want to do in retirement.”

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A word of caution for aged pensioners and others on welfare payments, there are limits to how much you can gift, before it affects your pension.

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