By David Baruffi, Financial Advisor
As parents we always want to help our children. However, financially there comes a time when you should stop. While making our kids’ lives easy is hard-wired into us, our efforts to lessen their pain can, in some instances, end up in disaster.
Here are a few examples of things that have gone awry:
• A mother gifts a house to her daughter. The son-in-law takes a lean on the house and invests the money unwisely; the investments go bad and the house is lost.
• Parents buy their daughter a house only to find the new boyfriend has grand designs (and no money) to renovate. All of the debt the parents protected their daughter from is now consumed in building the boyfriends dream home.
• Parents transfer the farm to their son only to have it become subject to the Family Law Courts.
All of these cases actually happened.
To avoid these pitfalls here are some tips:
1. Don’t transfer assets into your children’s names. Grant them the beneficial rights of the assets (through a trust or just use) while you are alive. Then leave the assets to them in a Testamentary Trust. Your children don’t need to own the home they just need to live in it.
2. Pay the kids rent or contribute to part of their interest costs; don’t gift capital. You would have most likely experienced changes throughout your life and your kids will do the same. Sinking your capital into your kids’ dreams now only to see those dreams change could be a heartbreaking waste of money.
3. If you really want to help then establish an education fund for your grandchildren, then spend the money on yourself if they don’t materialise. The most expensive time of your kids’ lives will be when they have teenage children. That is the time to help, not while they are finding themselves, travelling around Nepal.
4. Teach your kids the value of money. If you don’t teach them the value of money, life’s experiences will. That could be a far costlier exercise.
In summary, save the support for your children until it is really needed. If you would like to review your personal financial plan, or discuss ways to support your children along the way, please contact us.
David Baruffi is an authorised representative and credit representative of AMP Financial Planning.
Blueprint Planning Pty Ltd (ABN 78 097 264 554), trading as Blueprint Wealth, is an authorised representative and credit representative of AMP Financial Planning, Australian Financial Services Licensee and Australian Credit Licensee (AFSL / ACL 232 706).
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.