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Nine rules to guide you to die with zero

In my broader family, an issue that’s come up for recent discussion is about parents gifting their children money before they die instead of leaving it until after they die. As you can imagine, it’s a thorny issue. The parents reflexively believe that the money should be given through inheritance after they pass away. The children, or at least some of them, think the money would be of more value if it were given to them before that time. To them, it would be more compassionate, and might also avoid any quarrelling between the children after their parents’ deaths.

The issue doesn’t make for pleasant dinner table conversation but it’s one that’s likely to be aired more often as Baby Boomers in Australia get older, die richer and leave behind larger bequests. The Productivity Commission says Boomers – those born between 1946 and 1964 – are expected to pass on an estimated $224 billion each year in inheritance by 2050, a fourfold increase in bequests.

The question for many parents is whether to make their children wait for their inheritance or not. Today, we’ll go through the pros and cons of the issue, as well as the legal and tax implications.

The nine rules

My family discussions on inheritance have coincided with the reading of a book by a former fund manager, Bill Perkins, called Die with Zero. As the title of the book implies, Perkins believes all of us should aim to die with nothing in our bank accounts.

Why? Because for him life is about having experiences rather than accumulating money:

“Those are two very different goals. Money is just a means to an end: Having money helps you to achieve the more important goal of enjoying your life. But trying to maximize money actually gets in the way of achieving the more important goal.”

By aiming to die with zero, Perkins thinks you’ll forever change your autopilot focus from earning and saving and maximizing your wealth to living the best life you possibly can:

“Why wait until your health and life energy have begun to wane? Rather than just focusing on saving up for a big pot full of money that you will most likely not be able to spend in your lifetime, live your life to the fullest now: Chase memorable life experiences, give money to your kids when they can best use it, donate money to charity while you’re still alive. That’s the way to live life.”

Perkins outlines nine rules for achieving the aim of dying with zero:

Rule 1: Maximise your positive life experiences

Perkins reckons you should start thinking about the life experiences you’d like to have, and the number of times you’d like to have them. This will get you to focus on meaningful and memorable experiences:

“Unlike material possessions, which seem exciting at the beginning but then often depreciate quickly, experiences actually gain in value over time: They pay what I call a memory dividend.”

Rule 2: Start investing in life experiences early

If life is the sum of your experiences, then everything that you do in life adds up to who you are. Yes, you’ll need money to survive in retirement, but the main thing you’ll be retiring on is your memories. Therefore, Perkins thinks you should invest in life experiences, and start as early as you can.

Rule 3: Aim to die with zero

Perkins says that though you may not succeed in dying with zero, that should be your goal:

“People who save tend to save too much for too late in their lives. They are depriving themselves now just to care for a much, much older future self—a future self that may never live long enough to enjoy that money.”

Rule 4: Use all available tools to help you die with zero

Perkins addresses the fears of many people that they’ll run out of money before they die. He thinks if that’s a concern for you, then you need to investigate various tools including annuities – financial products that offer a guaranteed income stream.

He suggests that the other, more important part of the equation is how not to waste your life energy by underspending.

Rule 5: Give money to your children or to charity when it has the most impact

Perkins says the peak utility for money – the time when it can bring optimal usefulness or enjoyment – is around 30 years of age. Yet, the average age for inheriting money is close to age 60 for Americans and 50 in Australia (though most receive it between ages 55 and 59):

“Putting your kids first means you give to them much earlier, and you make a deliberate plan to make sure what you have for your children reaches them when it will make the most impact.”

Rule 6: Don’t live your life on autopilot

Perkins isn’t saying that you shouldn’t save for the future. Instead, he’s saying that it needs to be balanced with spending on the present.

He makes a good point that many experiences depend on your physical health. If you’ve been biding your time to go on that hiking trip, it’s best to do it now rather than later.

Rule 7: Think of your life as distinct seasons

To get more out of the present, Perkins advocates dividing your life into time buckets. That is, draw a timeline of your life from now to the grave, then divide it into intervals of five or ten years. Think about the key experiences – activities or events – that you definitely want to have during your lifetime.

Rule 8: Know when to stop growing your wealth

Often, your net worth peak – where it’s the highest that it will ever be - happens well before retirement. Perkins believes that’s the time to start spending down, or de-accumulating.

Rule 9: Take your biggest risks when you have nothing to lose

Perkin’s view is that you’re better off taking more chances when you’re younger. You’re less likely then to let irrational fears get in the way of making choices that reflect your priorities.

An older theory

Perkins' book is a modern take on an old theory. In the 1950s, economist Franco Modigliani, who went on to win a Nobel Prize, created the idea of the Life-Cycle Hypothesis. The hypothesis says that people should manage their spending and saving to get the most out of their money across their life span. Put another way, making the most out of your money throughout your life requires that wealth declines towards zero by the time of death.

As for the fear that you might run out of money, Modigliani says that to be safe, you should think about the maximum age that a person can live. He believes a rational person will spread their wealth across all the years up to the oldest age to which they might live.

The Australian dilemma

The issue of inheritance or to ‘die with zero’ is becoming more relevant in Australia as the population ages.

A 2021 Productivity Commission report found that Australians are currently passing on $120 billion each year – 90% as inheritances and the rest as gifts – with an average inheritance netting the recipient $125,000.

The report projected a fourfold increase in the value of inheritances between 2020 and 2050 “partly driven by rising wealth among older age groups” with housing wealth a significant factor, along with unspent super.

It also estimated that the ageing population will see a doubling in the number of deaths by 2050, with older people making up a larger share, and falling fertility rates meaning fewer children to leave wealth to in the future.

Productivity Commissioner, Lisa Gropp, commented that:

“By the time people receive inheritances, they’ll usually be well into middle age — about 50 years old on average. This limits the impact inheritances have on opening up lifetime choices and opportunities about career and family.”

And the report concluded that Australia’s taxation system is geared towards encouraging intergenerational transfers of housing wealth, as the family home is exempt from the pension assets test.

An earlier report from the Grattan Institute found that in Victoria, the median estate is worth around $500,000. About 20% are worth more than $1 million, and 7% are more than $2 million. Property is the largest component, accounting for half of the average value.

The main beneficiaries of ‘final’ estates – estates without a surviving spouse – are children, who get about three quarters of all inheritance money. And average inheritances are growing about 2% above the rate of inflation each year, and that’s expected to accelerate in future.

More than 80% of money passed down from parents goes to people aged 50 years and over. The most common age bracket in which people get an inheritance from parents is 55-59 years of age.

The pros and cons

The question then goes back to whether parents should consider giving their money to their children before they die. Perkins' book over-simplifies the choices that people must make. There are numerous things to examine before making a final decision. Here is a list of pros and cons:

Pros:

1. You get to see it. If you give money to your children early, you will get to see the fruits of that. Whether it’s a holiday, purchase of a home or the funding of education, helping loved ones like this can’t be overstated.

2. You may be able to give money when your children most need it. As Perkins mentioned, the peak utility for money is around 30 years of age. Instead of children inheriting it at age 50 or above, when they often don’t need it so much, it might be better to give the money to them when they require it most.

3. Potential tax benefits. Australia is one of only eight developed countries that don’t tax inherited wealth. However, there is a 17% tax on superannuation passed to a non-dependant, which is an important part of estate planning as strategies are required to take the money out of super before death. Given the current government’s crackdown on super tax breaks for the wealthy, it wouldn’t be surprising if inheritance taxes were looked at in future.

Cons:

1. You might run out of money. Despite all the research suggesting that Australians spend little of their retirement money, there’s always the fear of running out of money. And it’s understandable: you must plan and save for the future, including for unexpected spending events/decisions.

2. Tax issues. If you give money to your children, they won’t have to pay tax on that gift. But if you sell an investment to fund the gift, there may be tax consequences such as capital gains on any profit that you make on the sale.

If you decide to finance a future expense such as a grandchild’s education, you may need to consider the tax implications, as minors are subject to penalty taxes on investment income.

An alternative option that may avoid tax complications is to loan rather than gift money to your children. With a written loan agreement, you can set the terms to benefit and protect people according to your wishes.

3. May lead to more family drama. Giving money to children before you die may seem like it will reduce the prospects of inflaming family drama, yet that might not be the case. Early giving may cause resentment among loved ones who don’t receive the most of your generosity.

There can be other complications. Say you gift your child money, and they buy an apartment with the funds. They later break up with their partner, who could ask for half of the money that was put into the property purchase.

4. It can affect your age pension. Centrelink has special gifting rules to prevent people from giving money away to qualify for the age pension. It says you can only give away $10,000 in one year, or up to $30,000 spread over five years, without any effect on your pension.

For amounts exceeding this, you will still be treated as though you have held onto the money for five years. The excess over the limit will be included in your assets for the pension assets test, and you will be deemed to have earned income on it for the pension income test.

Can you get around the gifting rules by selling your home or other assets to your children at a reduced price? Centrelink says gifting also includes assets that are sold or transferred for less than their market value. If you own a home worth $600,000, and sell it to your children for $300,000, it says $300,000 will be regarded as a gift and used in calculating your pension entitlement after allowing for the permissible $10,000 gift.

Note that these gifting rules don't apply to those not on an age pension, who can gift as much as they like.

This isn’t an exhaustive list of pros and cons, and if you want to receive professional advice on the issue, please consult a financial advisor and an estate/tax lawyer.

 

James Gruber is an Assistant Editor for Firstlinks and Morningstar.com.au. This article is general information.

 

55 Comments
Jane
October 26, 2023

During the last two years we purchased property with each of our adult (late 20s) kids. We did it a little differently - not a loan to them, as we didn't have that much spare cash, but a shared purchase. We own half of an apartment with our oldest, and ? of a townhouse with our other child and their partner. In each case our 'investment' was about the same amount. We were able to get two mortgages on each of the properties from CBA, and are tenants in common. Not all banks allow this.
We were able to do this without taking out a mortgage on our own home, and paid off our mortgages as fast as possible using both of our incomes. It was important to do this before either of us retired.
To enable them to purchase their part of each property, we gifted our kids $100k each. We can decide whether to gradually gift a higher percentage of the properties to them over time so they have greater equity if/when they decide to sell and purchase something larger.
It is a great joy to see them happy in their own homes.

Paul
May 07, 2023

We gifted my two daughters a fair amount (roughly equivalent to what my wife earnt over 20 years). One son-in-law quit his job to look after their 12 month old child but not in a full-time capacity. The other daughter sent us to Coventry for reasons that aren't obvious to us. I believe in the intergenerational transfer of assets and so would do it again.

Abel
May 02, 2023

I have read the book and can strongly recommend it. The title is catchy and that was the intention but the goal really is about not to keep accumulating wealth and lose track of what that wealth is for. One section describes the factors you need to enjoy your wealth: Age, money and health. If you keep your wealth until the last years of life, you won't have the energy, health or desire to enjoy things.
The author is very wealthy so many things won't apply to us. But the book did change my perspective and as the author says, make sure you are actively deciding on what to save and spend and not just go through life in default mode.
It is not an invitation to spend irresponsibly or to stop saving. Read it and see what things make sense to you.
Many of the comments about longevity risks and valid but distract from what the book is telling us to think about.

Jim Hennington, Actuary
May 02, 2023

Hard to plan to die with zero when you don't know how long you'll live.

Using the Australian Life Tables for an average 67-year old couple:

Age Probability one spouse is alive (or both)
67 100%
70 100%
75 99%
80 98%
85 92%
90 75%
95 42%
100 13%
105 2%

This means it's dangerous to plan for your savings to reach zero by age 95, or even 100.

Mark
May 02, 2023

Family genetics are a better guide than averages. If the oldies have typically lived to their 80's or 90's in your family, barring accident or outlier event, odds are you're likely to be similar.

If they typically drop of in their 60's or 70's due to history of heart problems etc then again it's a reasonable bet of a range you can expect.

Height too plays a part, you don't see many 6 foot 5 guys in nursing homes. Yes Christopher Lee made it into his 90's but there are always exceptions, exceptions don't discount the rules.

Chris
May 21, 2023

Robert Wadlow died at 22. Andre The Giant died at 46 of congestive heart failure.

Height is largely genetic and diet based, and I think you'll find that amongst the "Builder" generation (average height in the 1920s was 5'7") and "Boomer" generation (yet to go into nursing homes), not many of them were 6'5" and so there's your lack of seeing them.

Correlation is not causation.

Marc
May 16, 2023

Ok what do the life tables say if one is already 81? Not a theoretical question in my case

Mark
May 17, 2023

Marc, that you have a lot less years left than you've already had. Make the most of them.

Graham
May 01, 2023

The navigation of health issues once you are 80 can be very difficult and expensive. Things like providing a $500,000 bond for aged care provision is mind boggling. The whole system needs to be made easier so that providing for it can be achieved with more certatinty.

Mark
May 02, 2023

My father is 87 and is blind and also has Dementia. My step mum and my father are not wealthy, they get full pension and they own their home. It is getting to the point that my step mum is not able to cope, even with assistance from aged care assistance. The house will have to be put up as security when the time comes.

David
May 01, 2023

I note the story by the ABC of an Australian lady who has just celebrated her 110th birthday. If she had been relying on superannuation for her retirement, she would have been forced to wind that down well before age 100 with the existing minimum draw down rules. The thought of dealing with Centrelink for the last 10 years fills me with horror.

Brendan Ryan
April 30, 2023

This is such an important topic. So happy it is being covered here. I am sure all the discussion will prompt more articles of this type in the future. So useful for many.

Jack
April 29, 2023

Another problem with the loan rather than the gift, even when there is a genuine desire to help your child and no expectation to be repaid. You are saying to them, "I love you, I want to give you some money to help you now, it's the best use of my money, and if it was just you, I'd give it to you. But I am not sure about the longevity of your marriage and so we will document it as a loan so I can claim back the money if your marriage fails." And that, folks, is a ticket to helping to cause the very thing you hope to avoid, creating disquiet for your child and their partner.

Lisa
April 30, 2023

Exactly. If I was the partner I would be looking at relationship with my in-laws in a whole different light and would be distancing myself from them.

Mark
April 30, 2023

That attitude could well vindicate the in laws choice to do what they did in that respect.

While you're together you get the benefit of the money loaned.

You'd only be miffed if you thought you were entitled to a big bag of money that's not yours in the case of seperation.

There are economic headwinds coming for the government regarding the growing number of singles. Housing and welfare especially.

Travis
May 01, 2023

I think it a reasonable precaution for parents to take and Iam in my 30s marrying into wealth. Why do you feel you have a right to half of the money that didn’t come from your side?

Lisa
May 01, 2023

It’s not about entitlement to money but the potential vulnerabilities and inequality if not on the same financial path as your partner.

Mark
May 01, 2023

Ok, Lisa, you loan your daughter $500k so her and her partner can buy a house, 2 years later they split up and he gets $200k of that money as part of the seperation. How would that make you feel?

David C
May 02, 2023

I have done this with both my children. There have been no apparent concerns and they and their partners have been most grateful.

Straight Shooter
April 29, 2023

It's such an unfair system for parents gifts to their own children to be subject to family law split. I wonder why there is no campaign for the law to be changed to protect family assets within the blood ties.

Acton
April 29, 2023

Rule #10 of How to Die With Zero: Invest in high fee charging, under-performing, dud managed funds. There have been quite a few. 

E Driscoll
May 01, 2023

Could not agree more. Wish I had done that before being stripped of a good share of my super.

Jill
April 28, 2023

Was it not Confucius who said "Best to give while your hand's still warm"?
I have to constantly repeat this to my two boys when they declare they don't need any help paying down their mortgages.

Jeff O
April 29, 2023

Giving while living...to children, their partners and your grand children has many financial benefits for the whole family - especially in the first instance where your children are constrained by their current household incomes, borrowing constraints and debt serviceability - and non-financial benefits too.

For the wealthy, the family trust and loans agreements can mitigate the risks and be setoff against inheritances at minimal financial costs. For less wealthy, “trust” is what the world goes around….with massive returns within families too.

As financial benchmarks, growth assets return say 8% pa and risk free assets say 3-4% over the financial cycle (of low inflation). So paying interest to bankers and under investing in family education, health, homes….wellbeing is a failure of many families with the tab picked up by governments/taxpayers. Why are parents holding excess wealth/savings earning 3-4% pa and the family as a whole is under geared, under educated or in ill-health?

Indeed, arguably the best economic returns are homes, health and education. With health issues, there are very large negative spillovers to incomes, wellbeing and the happiness of the whole family. You will not be happy if your children/ partners and grandchildren are unwell - and have to wait and wait for public health etc etc - so adequate health, life & disability insurance is straight forward and cheap

Education - broadly defined - and life experiences - provide the highest returns from pre school to uni/ TAFEs. Supporting your grand kids with tutoring, music/art lessons, while aying fees for online courses from the the world best providers (Harvard. LSE etc etc) involve small amounts with high returns - both financially and behaviourally. Exisiting indexed HELF debts - especially if inflation stays high - may significantly restrict your children’s borrowing capacity. That said, a mortgage/ and other responsibilities are one of the reasons why people get out and purse (labour) incomes and build their own life journeys.

Inter family loans - grand parents helping with the mortgage means your children will probably start a family earlier and then can spend more time parenting rather than full-time work - again a massive return compared with running yields/current incomes from work. From a whole of family financial perspective, the target should be dynamically geared across the whole family so that your kids get a home with a mortgage earlier rather than later - especially if home prices are in an up cycle. Early in their working lives, deposits/savings and borrowing limits constrain choices - with kids living on the outskirts cities in homes a long way from family or small homes unsuitable for their own kids that are down the track. For example, in up cycles - $250k warm hands have been doubled in 5 years - creating $250 k in tax free capital gains - effectively, the family as whole net equity/savings is up $250k!

So give while living - and best without ties/covenants - unrequited love - until it’s repeatedly wasted or realised returns (both financial and non-financial) are significantly higher elsewhere.

Paul Munchenberg
April 30, 2023

Jeff O,
Health Insurance is not cheap.
Not to mention Gap Payments.

Jeff O
April 30, 2023

Paul M
What’s the opportunity cost of disabling illness ? Or worse? No health plus no income means little family wellness but your choice

Michael
April 28, 2023

A very blokey perspective. No mention of how to navigate key family progressions, being there for grandkids (and their parents), spending days just hanging around family - we get caught up - lovingly - in these aspects - while our $$$ while away in suspended animation. The $$$ are a comfort cushion for the important things in later life's connections. How much is enough ---- connection? Right now I'd rather be there in person than give them $$$ and travel the world.

Mark
April 28, 2023

It's 4 1/2 years until I'm at preservation age and can get my Superannuation. I don't know how much I will have.

The more I have the more generous I will be able to be when it comes to helping my children. (3)

I've thought about just straight gifting and whatever happens in their lives after that, it's out of my control.

I've thought about setting up a trust, the trust buys them the property

A non interest loan is a possibility

Even thought about just giving them a credit card each attached to cards owned by me with a monthly spend limit they can use for their bills etc and use their wages to pay for their property.

Knowing how much I have when the time comes will certainly influence how I do things.

I wouldn't concern myself over potential marriage breakdown issues over say $200k or $200k. In the scheme of things with regard to property split, that's not a huge sum.

Lyn
April 30, 2023

Mark, good idea of cr. card for running costs & they use wages for mortgage, simple idea I'd not thought of in principle, spreads load for giver, perhaps encourage good budgeting by receiver when know Mum & Dad see expenditure, removes awkwardness for parties concerned and capital retained re if marriage split.

SN
April 28, 2023

Rule 3: Aim to die with zero
Really Investing and saving is part of aging.That is part of your latter life.What you do with your money comes second
Start with Zero and it will end with a Zero

Graham Hand
April 28, 2023

Here's another tricky issue with the mum and day loan to help their kids. When considering an application for home finance, lenders prefer gifts and ask the parents to sign a document verifying they will give the money to their children. Banks do not like parental loans because loans may need to be repaid at some stage. So how do parents get around this problem? I asked this question at a financial adviser event and was told that they tell the bank it's a gift while at the same time drawing up a formal loan agreement but keeping mum (and dad) about it.

Finlay
April 28, 2023

That’s how I handled it for my kids. The loan agreement will only ever come out of the bottom drawer if they split up, otherwise it’s to be forgiven as part of my estate arrangements. If they split up after that, I won’t be around to care, and there will be more at stake anyway.

Keith
April 27, 2023

I’m trying to organise my finances so that the undertaker’s cheque bounces!!?

Ken
April 27, 2023

Give it to the grandkids. When my parents died, I got a share of the inheritance which I immediately passed on to my 3 kids. It enabled two of them to put a deposit on a house (the third already had one and spent it on improvements). Now, I'm subsidizing the school fees for my 6 grandkids. They get the benefit, and I get the satisfaction of seeing my money put to good use. I will leave charity bequests in my will though.

Altair
April 29, 2023

I did similar to you Ken. Plus I took my Super as a lump sum and put it in the bank. I've helped my four children towards their home deposit. That their relationship may break is a risk I'm prepared to take and that they sort it out fairly. Also yes I'll wait out the 5 year rule of Centrelink then apply for the aged pension, or apply before the 5 years is up. I live very simply - don't need a lot. A good idea to give most of it away I think, yes. Leave enough for the funeral etc :) thanks, good thought provoking article.

Martin
April 29, 2023

Thanks Ken. Whilst not a material sum that is what we did with my parents' inheritance. Interestingly, my in-laws have specifically redrawn their will so that their estate is directly allocated to their grandchildren (including our children).

Tony Reardon
April 27, 2023

“Life should not be a journey to the grave with the intention of arriving safely in a pretty and well preserved body, but rather to skid in broadside in a cloud of smoke, thoroughly used up, totally worn out, and loudly proclaiming "Wow! What a Ride!”
- Hunter S. Thompson

Geoff D
April 27, 2023

We took the opportunity to help both sons buy their home well before leaving the monies as inheritance purely because we wanted to actually observe them getting the benefits of not having to live in rented properties and the associated restrictions in that. An excellent decision in hindsight given the rental issues of today. Yes, the possibility of a broken marriage was a consideration and in one case we opted for a registered mortgage which we later discharged when we considered it safe to do so. Of course, a broken marriage of a beneficiary can also occur after the death of the parents the difference being the parents don't see it! We were fortunate that we could also afford it with careful planning and taking into account the government imposed minimum pensions required to be taken. It can definitely we done but it is not for everyone!

Neil
April 27, 2023

An additional con is linked to the Age Pension bullet point: the cost of Aged Care for the donor will also increase when gifts are made to children (in the five year period referred to).

John
April 27, 2023

Good point. Also it is important to have money for possible high medical and aged costs as they are only going to continue to go up. Especially in say the last decade of life.

James
April 27, 2023

" Australia is one of only eight developed countries that don’t tax inherited wealth." .....for now! Couple of points. I've read Bill Perkins book "Die with Zero". It's interesting and thought provoking. But easier for him to walk the walk than for many as he was/is extremely wealthy and fortunate. Easier too to be very generous when you have a huge surplus over what you require. Also, I believe now more than perhaps anytime in the recent past, there is much more fiscal and intergenerational pressure to extract more tax to pay for increased services, defence and pay down debt. You can't flog an almost dead horse (PAYG taxpayers) much more, so the time is ripe to extract more tax from wealthier citizens. Millennial's outnumber the aging boomers and their politics is more socially oriented and resentment toward older generations is growing. It's a new age!

Michael
April 27, 2023

I agree that the author's work reeks with the self-indulgence of someone who can afford to give it all away but be confident they will be well supported through later life. As an ex-adviser I always told clients to keep hold of their wealth. You never know when you might need it back - plus you avoid souring relationships by giving to kids who then think they have to suck up to you for the rest of your life because you gave them something. It just breeds resentment and uncertainty. If you do decide to be that generous then you can never expect it back...

AlanB
April 27, 2023

Access to voluntary euthanasia would allow me to enjoy life more, happily ticking off the bucket list, knowing there was point when I could say bye, thanks for the memories and die with zero.

JanH
April 27, 2023

Hear, hear! The only way one can get voluntary euthanasia is if you have a terminal illness and are close to terminating. I had a friend who chose VE and it was a wonderful, peaceful and rapid death, lying in the sun with her partner and dogs. I said good bye to her two hours before. Now that's the way to go but to get there she suffered untold pain and wretchedness before she got permission. Shameful.

David Green
April 28, 2023

plus even if it is legal you still have to have an incurable disease to do it. you should be able to kill yourself when in good health

Mark
April 27, 2023

I intend to help my kids out when I retire at 60 and can access my Superannuation.

My financial position will naturally dictate how much I can help them taking in account of my plans for retirement and the need to buy myself a place to live as I currently still rent.

I'm happy to help them out now than have them wait maybe 30+ more year before I pass to help them.

A niggling concern though, if they have a marriage breakdown down the track and get taken to the cleaners. Having been through divorce and having to start again being strong in my my mind.

AMAC
April 27, 2023

Mark,

I have the same concerns about marriage breakdowns. I will be getting a lawyer to draft up a loan document instead, so at any time, I can call in the 'loan' and it would not be split with an ex-partner.

Maybe you should look into this too?

Cheers

June
April 27, 2023

Mark, that is a very real concern as none of us want to give our hard earnt money to a child and then potentially see half of it walk away. We have been down this path with one child. The only way to address it is through tightly written "loan" agreements to your child only, and I think that was discussed in the Firstlinks article.

tim
April 27, 2023

That can be solved with a loan agreement (as suggested) Mark.

Lisa
April 28, 2023

Sure, but your child’s partner might be offended and it can create difficulties for them if your child feels comfortable financially after your gift/loan and wants to spend on lifestyle vs their partner who is aware they are only comfortable whilst with your partner. Also can taint your relationship with the partner if loan/gift done when they are on the scene. Needs a bit of thought, guess it depends on how much is involved.

Straight Shooter
April 28, 2023

This is a serious concern for us too. A loan agreement MIGHT help, HOWEVER, a loan is treated as your asset when Centerlink assess your eligibility for Age Pension in the asset test. So you either lose part of your age pension or lose the whole of it depending on the size of the gift.
I also read about family law court determinations the Financial Agreement (pre nup) can be over turned so it's not a definite protection for your gift to your children.
I'm running out of ideas...

Mark
April 28, 2023

I won't qualify for the aged pension so that is not an issue for me.

Paul
April 28, 2023

Having a loan to your offspring secured by a second mortgage on a property, as well as a Caveat, may help in divorce situations.

AlanB
April 28, 2023

My understanding is that courts enforce a 'fair' split of assets on divorce. An entitlement to half the assets/house is not negated by a private arrangement between a parent and one of the partners, particularly if the other partner did not sign, consent or even know about it. So if the parent wants their loan back it will have to come out of their child's 50% share, not from the couple's 100% share of the asset being split on divorce. Which defeats the purpose of protecting the parent's loan if the parent contributed more than 50% to the house purchase. Clarification welcome, preferably with actual example.

Michael2
April 29, 2023

There are just so many scenarios.

Fo example, an 80 year old I know told me one of her grandkids asked for help in buying a new car.

I know the woman is under enormous strain looking after her 85 year old husband.

I don’t know how much money she has but certainly doesn’t drive a flash car.

I think I would be saying yes, you can earn it at $50 per hour helping me out

 

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