By Ian Pepper, Penguin Financial
A RECENT survey of Australians, aged 50 and over, revealed parents give $22 billion a year to their adult children to help them get established, buy property or tide them over the tough times (Australian Institute of Family Studies July 2012).
Since property is hard to break into and there is no government assistance anymore for existing properties, parents naturally want to help their children get a start in life.
So what are the issues parents should consider; gift, loan or other?
One way to help adult children buy a home is to gift them the money to help with a deposit. The gift may be directly given or placed into a First Home Saver Account. The problem with gifting, is the money is not protected in the event the child divorces or separates, as the gift may become part of the joint assets.
Another issue for parents approaching pension age, is any gift amount over and above $10,000 may impact the parents’ pension entitlements.
A better way to provide support and protect the parents’ interest is through a written loan agreement.
Another option is for parents to provide guarantor support for their children by offering a property or term deposit to their children’s lending institution.
In some cases children may be able to borrow all of the purchase price and costs. Financial institutions offer a variety of options and it is best to limit the exposure on the parents’ assets if possible. Some lenders even allow the loan to be split so the children can focus first on paying down the loan secured on the parents’ assets.
Finally, parents may consider buying the property jointly with their children but this means parents have their names on the title deeds. For both guarantor support and joint ownership of property, parents need to be aware they may be fully liable for their children’s loan obligations.