According to recent research released by Digital Finance Analytics, parental financial assistance has risen by almost 20 per cent in the last 12 months.
According to the research, parents are now the ninth biggest mortgage lender in the country.
The research also suggests that increasingly parents are using at least part of the equity in their own homes to help their children get into what has become a very heated property market.
The motive for many parents is that they get to see their children enjoy some of their inheritance during their lifetime. But any arrangements should be treated with caution and diligence, as this generosity may ultimately lead to the parents being left high and dry if these arrangements are not adequately documented.
Issues can arise, such as a relationship breakdown, if the child loses their job and defaults on a loan, or if the parents are too generous and leave themselves short.
There are also potential tax and social security implications for the parents. Therefore, legal and financial advice should be sought before entering into any of these arrangements.
Another issue arises from an estate planning perspective. Where one child has received more than others, it may actually create dependency issues and create an increased entitlement to their parent's estate, to the detriment of their siblings. Sometimes, the more a parent gives during their life, the more a child is "entitled" to on their death.
Similarly, any arrangements involving granny flat agreements or the combining of assets and care provision should also be carefully contemplated and documented.
The recent Queensland Court of Appeal Case of Greer v Greer is an example of what can go wrong if intergenerational planning is not effected properly. This case saw a father gift his main residence to his son. The idea was to build a granny flat in a new property, but unfortunately, the father's health declined, and the granny flat was never built. The father then ended up in aged care with very little assets, and presumably a large bill to pay to the nursing home.
As a final note, parents should never feel pressured to help their children, particularly where it may be to the detriment of their own financial security and lifestyle.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.
