Generosity could split the family
QI own my house, which is worth $850,000, with no mortgage. I would like to buy an apartment around $450,000 and give each of my two children $150,000 for a deposit on a house. My son would like to use that deposit to purchase my house. How do I go about it?
Here we are in dangerous waters, Linda. I absolutely support your intent. With the long lives we are living these days, leaving 60- or 70-year-old children an inheritance is not really of much value to them. But I have a very strong view about helping the kids. First, we must make sure we are financially secure. At our age, we cannot rebuild wealth, while our children still have many decades in front of them to work and create savings.
If your house is your primary asset, its sale and subsequent purchase of an apartment leaves you with a home, which is critical. But then we must look at the security of your income. You may still be working, or if you are getting close to retirement, how is your super? Will you go onto an aged pension in time to come?
Your plan, which is really generous towards your kids, sounds like a nice idea. But I am deeply troubled that you are not putting yourself first. Sadly, I see well-meaning parents end up in poverty over kids’ loans gone wrong.
Sure, your son could borrow around $700,000, allowing him to pay you out and retain the $150,000 you want to give him. Then you could give your daughter $150,000 and buy an apartment. I fret about much family disharmony here. How does your daughter feel about this? Is the value a genuine market value for your home? What if the kids have a relationship breakdown? Does your generosity then go to others?
Your seemingly simple question is actually incredibly complex. I strongly suggest you go to a trusted adviser, an accountant or a solicitor and discuss all the pitfalls before you proceed
(See “It’s crazy to risk your own security”, page 29)
QMy husband and I are now retired and drawing on our super. We think we have enough money to “last”. We have two adult children. The mortgage has been fully paid out, but we haven’t discharged it, which means we have access to $300,000 to redraw if necessary (a loan we could no longer get now we don’t work).
Should we discharge the loan and get back our deeds or keep it? We could make a loan to our kids, but if they lost their job and couldn’t keep up the repayments we would be in trouble. In these very uncertain times I am not sure what to do?
What a timely question, Maureen! Linda also asks about giving her kids money (see
“Generosity could split the family”, page 28) and I posed a series of questions that really worry me. You have both worked hard to be in a position to gift or lend money to the kids, but your own security must come first. It is just a fact that you cannot rebuild your wealth, while your kids have plenty of time.
Frankly, I don’t see you using the redraw, but who knows what the future holds? I would certainly keep it there. In decades to come, it could be used for you own reverse mortgage, but I suspect the bank may not be happy about “later in life” redraws.
This also leaves more money in super. In this Covid-19 era, super returns will be volatile, but over the longer term there is no reason to believe that the excellent assets held by a good super fund will not provide reasonable returns.
So, as with Linda (page 28), here we are again. I applaud the idea of us helping our kids, but not if it drives us into poverty. As a minimum I would go to a solicitor and establish documents clearly loaning the money with set repayments. A loss of work, relationship failure or business bankruptcy could see unsecured family money lost forever. In your case, where interest payments from your kids are important to your own future, it seems to me that a loan is only sensible if secured to property and the kids are in good jobs and have reasonable assets and job skills.
I leave it with you to determine your plans, but I applaud your caution. It is wonderful to help the kids when we can, but abandoning our own financial security is crazy.