Thinking of passing it on sooner, while you can watch your kids and grandkids enjoy their inheritance? Read this first. Photo: YuriArcursPeopleimages.
For decades, the standard script went something like this: work hard, build assets, write a will, pass it all on when you’re gone. But these days, more families are choosing to transfer wealth while they’re still alive, helping adult children — and even grandkids — when the money can genuinely change the trajectory of their lives, and allowing older generations to see the impact of their generosity.
The reason is obvious. The world has changed, and buying a home is tougher than ever for today’s young adults. The result is a widening gap between generations — and a growing appetite to do something about it.
As DFK Everalls senior manager Melissa Healy puts it, multigenerational wealth transfers are about sharing money with loved ones now, when they need it most, rather than letting it sit as a future legacy.
“Given people are living much longer, making kids wait an extra 20 years can significantly reduce the impact of a gift,” she says.
“A gift in your 30s or 40s might help someone buy a home, reduce decades of mortgage stress, or afford school fees. The same money at 60 is helpful, but often less life-changing.
“You also get to see how it enriches their lives. For many parents and grandparents, that’s deeply satisfying.”
But before you start writing cheques, there are some big things to think through.
The first is protecting the money.
Put simply, once you gift it, it’s gone.
“You no longer control how it’s used, and one of the biggest worries families have is that money won’t stay with the intended beneficiary,” Melissa says.
“If you give a child and their partner money for a house deposit and they later separate, that gift may end up in the family law pool. There are strategies to reduce that risk, but they need to be put in place early.”
Just as important is protecting yourself. No one knows how long they’ll live, what their health will look like, or how much aged care might cost down the track. Any decision to transfer wealth now needs to be balanced against your own long-term security, including what you’ll need from super and other assets later in life.
That’s where lending, rather than gifting, can be attractive.
“Lending the money means you can call it back if you need it,” Melissa says.
And lending doesn’t have to mean charging commercial interest. Even a discounted rate can make a huge difference.
“For a child paying four instead of 6 per cent, the savings over a 30-year mortgage can run into the hundreds of thousands,” she says.
DFK Everalls senior manager and director Melissa Healy says there are many pathways to transfer wealth between generations, but most come with tricks and traps to watch for. Photo: DFK Everalls.
Don’t forget that both loans and gifts, while treated very differently, can affect your eligibility for Centrelink benefits. In some cases, gifting assets could even improve your position — but get it wrong, and you could unintentionally disadvantage yourself.
When it comes to helping kids buy property, there’s no one-size-fits-all solution. You might buy the home and rent it to them, gift money for a deposit, help pay down the loan, or buy together as co-owners. Each option carries different tax consequences, from stamp duty and capital gains tax to land and income tax.
“For example, going 50/50 on a home means you’ll pay stamp duty upfront and potentially capital gains tax when you exit,” Melissa points out.
Some families look beyond property and set up a family trust. Instead of handing over a lump sum, assets are placed into a structure that generates income for children or grandchildren. It can offer flexibility and control, but comes with its own tax considerations.
It can all feel overwhelming. But the first question Melissa asks any client considering a multigenerational transfer is simple: What’s your goal?
Then you need to work out what you can afford.
“How much do you have in super and cash? How much can you spare, and for how long? What interest will you forgo, and can you afford it? It’s about doing the maths,” she says.
“Then it’s about what you want it to look like. How much control do you want?
“After that, we can get into the nitty-gritty — repayments, paperwork, and your will. For example, if you lend one child $100,000 for a house deposit and you have another child, do you need to adjust the split of assets? And what documents show the terms of the gift or loan?”
There are likely multiple ways to achieve your goal — and often, only one best way.
For more information, contact DFK Everalls.
