One question we are advising clients on more frequently these days revolves around them wanting to help their children financially, but at the same time protect that money to ensure it stays in the family. Some interesting figures from 2017 pointed to family members, essentially the Bank of Mum and Dad, being the fifth largest source of lending in Australia behind the big four banks, at around $65 billion.
Having the right strategy can make a big difference if something goes wrong and will play a significant part in determining whether that money will be lost, or whether it can be protected and recovered.
What are the risks?
Two of the more common concerns we see are:
Keeping it in the family
Giving money to children is a simple and easy way to help them out. However, once the money has been given, it is gone and there is no ability to get it back. This can cause many problems, including:
Putting in place a loan agreement can assist in avoiding or reducing many of the issues with gifts. The key point is that the loan must really be a loan and not a gift. Ideally, a loan arrangement would include:
There are other practical matters to consider regarding loan arrangements, including:
Being able to help family members can be a great way to see them get into the property market or start their own business. Making sure you put the right arrangement in place is key. Putting in place a loan arrangement which requires security and repayments gives better protection. If you don’t loan it, you run the risk of losing it.
If you would like to discuss the financial assistance options available to you and/or your loved ones, please contact Calibre Private Wealth Advisers
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