The Domain real estate site is one of many regulars I check out for a wide range of considerations and a recent article caught my attention on the various scenarios where family can help their children with their first home purchase.
I would invite readers to check out the article themselves, as my purpose is to list the scenarios and then make some observations in this 'ministry' comment piece.
But before I provide the list as spelt out in this Domain article, there are some common issues which you should be aware. One is that the High Court of Australia has ruled that giving money to your family members, that money is not taxable. So should Mr and Mrs Bob and Mary X give to one of their son Peter X and his partner Jenny X $25,000 to help their deposit for their first home, Peter and Jenny do not pay tax on that income of $25,000.
But, this is where it gets tricky, should Mr & Mrs Bob and Mary X be receiving Centrelink benefits, that family gift of $25,000 has to be revealed and taken into account as part of their asset value. The reason for this is simple, the mum's and dad's of the nation could give their children the bulk of their money and then claim Centrelink payments. It's a good thing to check the pitfalls.
The list – ways to give to your children to help them buy property
Giving a money gift
Lending them money
Standing guarantor for a loan
Buying together
Granny flat to the family home
Inheritance
Learnt financial habits
Practical outcome 1
Recently I read where those children's bank accounts established at school was coming under scrutiny. There was an outcry for those to be disbanded. Generations of children took their first steps into the world of finance with those 'dollar-mite' accounts.
I can recall my parents giving me a coin when the dollar-mite team was at the school and I'd line up with all my school mates (boys and girls) and have that coin added to my dollar-mite account. Those banking staff had no idea who was giving them the money, they could have been looking at a future investment banker or perhaps to a future home-maker where every grocery shopping cent counts.
When I purchased my first 'home unit' way back in the '70s with the help of my parents, my mother handed me my dollar-mite account to add to the deposit monies and I was happily surprised as to how much that account had built up over all those years.
Practical outcome 2
Assurance is a lost financial art form today and although we sat our children down one Christmas everyone was home and explained it. Not one of them seemed to see its value, rather they spoke of other financial products which in our view had the word "risk" in cinematic colours - for which was blind to them.
When both my wife and I first started work, Delma as a stenographer and me as a trainee engineman (NSWGR train driver) the first thing we were advised was to sign-up for an Assurance which meant putting a tiny amount of money each month and then it would come to term tax exempt when I was 45 for $14,945 and Delma 42 $10,000. I can still recall the amount taken each month was only $14.95.
But that was the time in our lives when we wanted things done to the house, and the children were in their heady teenage years, going off to university, leaving home with college accommodation to be paid for, and the rest of it. All of a sudden we had the money to do those things.
Practical outcome 3
In my 38 year ministry I have been taken into the confidences of many families and I have seen all those things listed earlier, some with better long term outcomes than others.
There are generally two tricky components. The first is that as the children leave home, their study years, develop their careers, some will do a whole lot better financially through a whole range of circumstances – here's the rub - than others in their families. This might be due to unforseen health issues, lack of opportunity, changes outside of their control, whatever.
Those in the family who have done well may not understand why "you as parents" may need to help those without such advantages.
The second relates to family breakup situations or a death. Should the parents of the son who married receives money, those monies need to be legally guarded. Who knows, there might be a marital breakup. So before any house sale monies can be divided, the monies loaned by family are withdrawn first and not counted in the separation of sale funds.
Likewise should say the parent's money be given, say to the daughter and due to a medical condition or some kind of accident, that money is legally protected for the parents and if there are children born, that money legally trusted to the grand children. No one wants to see family money walking out the door by the widow/er taking up with someone else.
Wisdom
If there is anything that the Proverbs instruct us is that of wisdom. There is so much wisdom in the Proverbs for instruction and I have made it a point since a young man, to regularly read the Proverbs.
If there is anything I have learnt in my pastoral ministry is that procrastination is so very dangerous in matters such as these. Get it done today!
Dr Mark Tronson is a Baptist minister (retired) who served as the Australian cricket team chaplain for 17 years (2000 ret) and established Life After Cricket in 2001. He was recognised by the Olympic Ministry Medal in 2009 presented by Carl Lewis Olympian of the Century. He mentors young writers and has written 24 books, and enjoys writing. He is married to Delma, with four adult children and grand-children.
Mark Tronson's archive of articles can be viewed at http://www.pressserviceinternational.org/mark-tronson.html