Stagnating wages and rising house prices are two reasons that young people are turning to their elders for financial assistance. Increasingly parents and grandparents are helping with home deposits, acting as guarantors, or gifting money to help with general living expenses. Colloquially, this is known as the bank of mum and dad.
As Robertson Hyetts Lawyer Cat McGauran explains, there are benefits to the bank of mum and dad. For example, it can help young people buy their first asset, or make an investment they otherwise could not afford. Plus it feels good – parents and grandparents are often keen for younger family members to have financial security. There are, however, some risks that need to be considered and managed.
It is important to decide whether it is a loan or a gift, and that all parties are clear on which it is. Your intentions should be formally documented, as they can have tax and Centrelink implications. Similarly, if you gift your child money and want to protect it from potential family law proceedings, you need to document your intention. Otherwise the gift may end up forming part of a family law settlement.
How this financial assistance will affect other relationships is also something to think about. Will someone feel left out? If you’re the parent, will you be able to provide the same assistance to all your children? What happens if the relationship between the parents and child breaks down? These are just some of the factors to consider before deciding on financial assistance from a family member. Before you enter into any agreement like this, all parties should seek independent legal and financial advice.
To discuss your options with one of our Property Lawyers, please call Cat McGauran or John Wellington today in Castlemaine on (03) 5472 1588 or Jessica Hall and our Bendigo Property team on (03) 5434 6666
