Kids get in early for their parents’ estate

There’s a fine line between helping offspring financially and elder abuse, writes

EARLY inheritances are being handed out by senior Australians at an increasing rate, prompting a warning from advisers for retirees to make sure they protect themselves financially.

As rapidly rising life expectancies widen the gap between retirement and death, seniors are choosing to help out their offspring when they can best use the money, while others are being pressured to give it up.

The forceful child effect is known as “early inheritance syndrome” and is a form of elder abuse that has left law and retirement specialists working on ways to control it.

Adrian Frinsdorf, director of wealth advisory at William Buck, said he was seeing more elderly parents choosing to give away wealth while they are still living.

“That way they can see the benefits first hand and in some cases offer advice on how to invest the money so it provides ongoing value,” he said.

“As grandparents become increasingly involved as carers in the lives of their grandchildren, I’m also seeing more early inheritance funds being used to pay for secondary and tertiary education.”

Mr Frinsdorf said it was important for generous parents to leave themselves enough money to fund their own lifestyle, and it was worthwhile speaking with an adviser to prevent unexpected tax issues.

Cowell Clarke tax partner Andrew Sinclair has noticed an increasing number of retirees lending the money rather than giving it away, largely to protect family wealth in the event of divorce.

The loans are typically zero interest or very low interest, can be recalled if financial circumstances change later on and make it easier to distribute an estate fairly when the parent eventually dies.

“Uncertainty over family relationships and future financial security is seeing a move away from simply giving assets to the next generation,” Mr Sinclair said.

“When it comes to parents passing on assets, family-friendly loans have emerged as a more popular alternative.”

Wills and estates law specialist Joshua Crowther from Stacks Law Firm said early inheritance syndrome was a “reasonably regular occurrence” and he had seen adult children who had been estranged for 30 years suddenly return as doting carers when informed of a parent’s terminal illness.

Mr Crowther said the creation of specific laws dealing with elder financial abuse – similar to those enacted in some US states including California – might help combat the problem.

“With today’s property prices shutting wannabe homeowners out of the property market, inheritance or early inheritance may seem like the only way to get a foothold,” he said.

These factors combined would put downward pressure on property in general, but of course the effect on an individual property would depend on its location and price range.

The pressure would be less for investors as the interest on their loans is tax-deductible.

I HAVE a loan facility with my bank which enables me to borrow on just about anything and I have used an amount for a wedding and to purchase two cars. How does Centrelink regard this in the calculation of assets?

A departmental spokesman confirms that money a person spends is not prima facie assessable under the social security assets test. However, where a person purchases assessable assets, such as a car, the car is assessable as an asset

There is no simple answer because the amount a person needs in retirement depends on a wide range of factors which include the state of their health, the rate of inflation, how long they think they will live, the rate they draw their money down, and the amount they can earn on their portfolio.

Also, as assets diminish, eligibility for the age pension may increase, which can slow down the rate at which assets are being reduced. This is why it is important to form a relationship with a good adviser and assess your portfolio at least once every year.

On my website is a retirement drawdown calculator that enables you to work out how long your money will last based on certain assumptions that you can enter. But it is a rough guide only.

Noel Whittaker is the author of Making Money Made Simple and other finance books. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au