Hello Vanessa,
Like many my age, it hurts me to see my children have financial difficulties. I have studied the idea of giving them an early inheritance, something to help them buy a first home.
This is a topic that I know practically nothing about. Obviously I want to make sure my own financial future is secure before I do anything. Is there an official process or do I just transfer an amount of cash?
Keeping in mind that I will address this alone since I am divorced from his father.
Alice
Send your questions to leading monetary educator Vanessa Stoykov at bloomafter50@dailymail.com.au
Leading money educator Vanessa Stoykov (above) says Alice should plan her future expenses, possible lifestyle changes, and any safety net she wants to maintain before giving her children an early inheritance.
Hello Alice,
It is difficult to watch your children struggle financially and many parents choose to help their children with an early inheritance to enter the real estate market. It’s a generous step, but you’re right to make sure your own financial future is secure before doing anything. Balancing both is key.
An important factor to consider is making sure you have enough funds set aside to not only support yourself in retirement but also to enjoy life with your children. Whether it’s travel, experiences, or just being there to help with the smallest day-to-day expenses, maintaining financial independence allows you to be flexible and enjoy your time with them without worry.
When it comes to giving money away, especially if you receive an age pension, there are limits you should be aware of. You can donate up to $10,000 in one financial year, with a maximum of $30,000 over five years. If you exceed this limit, Centrelink will continue to treat the excess as part of your assets for five years, which could reduce your pension entitlements. Planning within these limits will help protect your income.
If you don’t receive the old-age pension, you still need to plan for the long term. There are increasing costs associated with healthcare, housing, and even unexpected expenses that can add up quickly during retirement.
Therefore, before you commit to donating a large sum, I recommend that you plan your future expenses, possible changes in your lifestyle, and any safety net you want to maintain. Ensuring you are well prepared financially will allow you to give with confidence, knowing that you will not compromise your own security and enjoyment for years to come.
Additionally, you may want to think about spreading the gift over a period of time. This way, you can still provide significant help without transferring a large lump sum all at once. It also offers you the opportunity to adjust your financial situation as life progresses, allowing you flexibility if circumstances change for you or your children.
Licensed financial advisor Shayne Sommer of Shadfords Financial Group suggests Alice should also consider the purpose of the financial gift and the timing of the transfer.
Another thing to keep in mind is that helping your children doesn’t always have to be in the form of a lump sum or property deposit. It could be supporting them through smaller, ongoing contributions that ease their financial burden while giving you control over your own financial situation. For example, helping with education costs, medical expenses, or other specific support can be equally meaningful while allowing you to keep your long-term financial goals intact.
My friend, licensed financial advisor. Shayne Sommer of Shadforths Financial Grouppoints out that while many parents are eager to help their children enter the housing market, once the money is transferred, control is lost over how it is ultimately spent. Before giving away money, he suggests considering:
Purpose of the gift: Decide if you are comfortable with your children using the funds for an investment property or if you would prefer they be used for a home in which they will live. This ensures that early inheritance aligns with your intentions.
Transfer time: You may want to wait until your children can demonstrate their ability to manage loan payments or have saved more for the deposit. This ensures that the funds will be used as intended.
Shayne also addresses a common concern parents have: the risk of relationship breakdown if the property is owned jointly with a partner. One way to protect funds is to offer them as a loan rather than as a gift. If a relationship breaks down, you can withdraw the loan to ensure you get the money back, probably by selling the property, rather than splitting it up in a separation.
It is also necessary to consider the emotional side of donating an early inheritance. It’s important to communicate openly with your children about what this money means, both to them and to you. Setting expectations about how the funds will be used can help avoid misunderstandings and ensure that the gift is appreciated as intended. By having these conversations early on, you can avoid complications later and ensure that the gift supports both your children’s goals and your own financial well-being.
Ultimately, you want to find a balance between helping your children and maintaining enough resources for your own financial security and enjoyment. Seeking professional financial advice can also help you make these decisions and ensure the best outcomes for you and your family.
If you’d like to learn more about how to manage your estate and have these important conversations, my course Why we need to talk about inheritance covers these topics in depth.
I wish you all the best and we will send you my book for free for being the question of the week.
vanessa
