By using some of your superannuation or other cash assets!
The increasing inability of children to be able to afford their own home is frustrating for both parents and children alike.
I recently had a discussion with an independent retirement strategist who informed me of a real option that parents may have to give their children funds to buy a home; or service an existing stressful mortgage on their home; or upgrade their existing home (renovation or purchase a new home).
The option is based on a parent or parents affordably using their superannuation and/or other cash assets, in conjunction with legitimate and legal access to the rules around Centrelink Age Pension Payments.
So, let us say you are a parent or parents who are at least 60 years of age and have, say, $1,000,000.00 in superannuation or assets (cash or convertible to cash).
You want to assist your child or children financially to enable them to afford a home, a home upgrade, or with servicing a stressful mortgage.
Let me explain the steps involved.
The first step is to seek financial advice from a licensed financial planner on whether:
- you can afford to gift your child or children an early inheritance of, say, $500,000.00; and
- you will qualify for a full age pension once you have paid the early inheritance, noting that Centrelink will classify the inheritance payment by you as an asset of yours for 5 years from the date of the gift.
The second step is that, if the first step is confirmed, your child or children then engage a lawyer to establish a discretionary family trust (“the trust”) for their benefit and with you as the parent or parents having no control or influence over its operation.
The third step is that you gift the early inheritance amount to the trust and, pursuant to a loan agreement prepared by a lawyer, the trust then loans the inheritance amount to the child or children, at a zero interest rate and over as long a term as possible, say 20 years. The loan should have regular repayments mirroring a normal bank loan, as you and your fellow parent will want this regular income as part of your retirement income.
The fourth step is that the loan made to the child or children is used as a deposit on the purchase of a home, a reduction in principal on an existing home loan mortgage, or for a property upgrade, such as a renovation.
The fifth step is that your child or children withdraw an agreed amount of money from the family trust monthly and then give this amount back to you as the parent/s. Centrelink will not consider this as income to you.
The sixth step is that you as the parent/s apply to Centrelink for a part pension now (if you have less than $1,000,000.00) or a full pension in 5 years.
The result of these steps is that.
- Your child or children satisfy their housing objectives; and
- The regular monthly payments from the child/children are additional income to the parents and can be more than the interest on the gifted inheritance amount, had it not been gifted away. Then, after 5 years the parents will also receive the Age Pension as well.
Matters to do with your superannuation require that you seek the advice of a licensed financial planner, however, your liaison with Centrelink can he managed by an independent financial strategist, who understands Centrelink rules and regulations.
As lawyers, we can assist parents and their children with advice and documentation in relation to the documents mentioned in the steps above, as well as wills and enduring powers of attorney, which we believe are critical for every person.
If you wish to know more, please call Jim Wilson on 0415 645121 and he will refer you to a licensed financial planner and an independent financial strategist.
Finally, this article is of a general nature only, is for interest only, and is not financial advice. No reader should endeavour to follow the steps explained without proper financial advice. Better Business Lawyers accepts no responsibility for any person acting on any of the steps mentioned in this general interest article.
Need support?
Ensure you are prepared with personalised legal support. Contact Jim Wilson, a Mobile Business Lawyer on 0415 645121 for a no-cost, no-obligation phone call to discuss your concerns and learn how his come-to-you legal service can assist you. Want a face-to-face meeting? Jim Wilson will come and meet you at a convenient location, whether that is your work, home or a local cafe.