How can you support your children and grandchildren without putting your own financial security at risk?

Many Australians want to help their descendants financially in areas like private school fees, student debt, first home deposits or just supporting them through difficult periods. And they would prefer to do so now rather than leaving it all as an inheritance.

That’s understandable. But neither do you want to jeopardise your own financial future. As one of our advisers says, the principle should be to ‘gift the fruit, not the tree’. In other words, share what your wealth produces without giving away assets you may need later.

Gifting is one way to transfer wealth to the next generation but may affect your entitlement to social security benefits like the Age Pension, if you gift more than $10,000 in one financial year or a maximum of $30,000 over a five-year rolling period. Additional information on how gifting can affect your Age Pension can be found here.

An alternative is a documented family loan. This may give you greater control and the ability to recall the money if things change. Documenting the loan ensures that all parties understand the rights and responsibilities when first entering the arrangement. However, the outstanding loan remains an assessable financial asset and subject to the deeming rules.

This table compares both approaches if you are providing financial assistance to a family member. The right one for you will depend on your resources, retirement needs and family circumstances. 

As always, it’s a balancing act. But an expert financial adviser can help you find the sweet spot where you both help the kids and keep your own future secure. Also, if you will be negatively impacted by providing a gift or loan then it may not be the right time to be providing financial support.