It is not uncommon for parents to provide financial assistance
to their children (and sometimes their grandchildren) during their
lifetime, rather than having the children wait until their parents
pass away to receive their inheritance. For example, parents may
pay the deposit for the purchase of a house, pay off a housing loan
or pay the grandchildren's private school fees.
Unexpected income tax or capital gains tax liabilities
Unfortunately, the generosity of parents can sometimes create
problems both for them and for their children. For example, what if
the gift creates an unintended income tax or capital gains tax
liability for the parent?
Wisdom in hindsight is no solution in this scenario. A generous
parent who suddenly realises the tax implications of the large gift
they gave cannot reverse the transaction and restructure it in such
a way as to minimise the tax liability.
Favouritism can lead to court battles between siblings
Parents sometimes decide to give a gift to one or more of their
children but to exclude their other children from that gift. It can
also happen that parents transfer control of a family business to
one or more children, to the exclusion of other siblings.
The unfortunate consequence of such actions can be that the
siblings who missed out on a particular gift make a claim on their
parents' estate after their parents pass away. The likelihood
of such a claim succeeding can be minimised if appropriate estate
planning strategies are put in effect at the time the gift is
Impact of giving large gifts on social security benefits
In my experience, a common unintended consequence of giving away
assets to children is that it unexpectedly affects the parents'
pension entitlements or other social security or veterans'
It is important to be aware that the gift is still treated as
part of the parents' own property for a number of years after
being given away to the child, and will therefore still be taken
into consideration for the purposes of the assets test after the
gift is made.
What happens if the son or daughter's marriage breaks
In the case of parents who generously pay the deposit for the
purchase of a property for their son or daughter, or who pay off
their housing loan, a depressingly common scenario is that the
child's marriage or de facto relationship breaks up and their
ex-partner successfully claims half of the gift that was given by
It is also not uncommon for a gift from a parent to be claimed
by creditors in the event of a business failure.
Given that no-one knows the future, it is prudent for the parent
who wants to pay for their offspring's property deposit, or pay
off their mortgage, to structure the transaction as a secured loan,
rather than an outright gift. Such an approach makes it less likely
that the gift will end up in the hands of someone for whom it was
Seek professional advice and make sure transactions are
To ensure that these and other possible problems are considered
and properly addressed, it is important that parents seek
appropriate legal and financial advice before making a substantial
gift to their children.
The risk of such problems arising, and the impact of those
problems if they do arise, can be removed or at least minimised if
the relevant transactions are appropriately documented. In matters
such as this, the old idiom that "the devil is in the
detail" certainly does apply.
There are several requirements that must be completed by an executor before the distribution of assets to beneficiaries.
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