Supporting Your Adult Children into the Housing Market
The dream of owning a home in Australia, particularly in cities like Sydney and Melbourne, has become increasingly challenging due to soaring property prices. That has led to many young adults around the country going to “the bank of mum and dad” for assistance getting into the property market. That means as a parent, you might be considering how to best support your adult children to do just that. There are a number of ways you can go about supporting your adult children into the housing market, each with their own considerations and financial implications. Let’s take a look.
Gifting Cash
One straightforward method is gifting cash for a deposit. This has no legal complexities and, assuming it meets the ATO’s criteria, neither you nor your child pay tax on the gifted amount. However, it’s vital to consider your financial security, ensuring that this gift doesn’t adversely impact your retirement savings or cash flow.
Informal Loans
Offering a loan can be an informal way to help cover the cost of a gift over time. It’s essential to establish clear terms regarding repayment schedules to avoid misunderstandings. This option keeps the financial assistance within the family and can be more flexible than bank loans, however does come with its own unique set of risks, as its informal nature does not offer the same legal protections as a loan from a bank.
“Going Guarantor” on their loan
Acting as a guarantor involves committing your own assets as security for your child’s home loan. This can significantly boost their borrowing capacity but poses a substantial risk; if your child defaults, your assets could be seized.
Family Trusts
Setting up a family trust can provide a structure for holding property that benefits your child while protecting the assets from claims such as divorce settlements. However, trusts are complex and can be expensive to establish and maintain.
Who Owns the Property
It’s crucial to clarify ownership. If your name is on the title of a property, it could affect your tax position and expose you to risks from creditors. Ensure that this arrangement aligns with your long-term financial plans.
Estate Planning Considerations
Helping one child might lead to expectations from others, potentially leading to estate disputes. Consider how this help aligns with your overall estate plan to ensure equitable treatment of all your children. As an example, some parents opt to adjust the amount they would have left for a particular child relative to the amount they’re gifting them to get into the property market.
Making It Legal
Whether it’s a loan or shared ownership, consider formalising the arrangement with a legal contract. This contract should outline all agreed terms and conditions, providing a clear framework and avoiding potential conflicts.
Seeking Professional Advice
As always, seeking out the professionals for guidance is advisable, as your generosity won’t be overshadowed by unnecessary complications. When considering how to help your adult children enter the housing market, it’s wise to seek guidance from a variety of professionals. This will ensure that your support is well-structured and legally sound, safeguarding both your interests and theirs:
Consult a Financial Adviser
We can assess how assisting your child might impact your retirement plans and financial stability, and develop strategies for structuring gifts or loans that minimise financial risk.
Speak with a Mortgage Broker
They can provide insights into the lending criteria and options available to your child, including the implications for your own borrowing capacity if you choose to act as a guarantor.
Engage a Lawyer
Essential for drafting any legal documents required for loans or property ownership arrangements to ensure all legalities are properly addressed. They can also guide you on family trusts and shared ownership implications.
Discuss with an Accountant
They can advise on the tax implications of gifting money, creating loans, or setting up trusts, helping you understand how these moves could affect both your and your child’s tax situations.
Consult an Estate Planner
They can help integrate any financial assistance into your broader estate plan, ensuring equitable treatment of all your beneficiaries and reducing the potential for future disputes.
How we can assist
Wanting to help your children is admirable, especially supporting adult children into the housing market, and it is certainly something we can assist with. We can advise the optimal way to gift money, become a guarantor, adjust inheritance amounts and more in a way that fits into your overall financial plan. If you’re looking to support your adult children into the housing market, please reach out to us today on 1300 349 188, or via our website.