You’re retired and you’ve set yourself up well financially. You have no debt, no job to lose, no (or little) taxable income, no kids eating your fridge out and ready access to capital. You’re the envy of every financially stressed 40 year old with years of pressure head of them; possibly your own children. You wonder how you can help but you don’t want to just hand over cash without a purpose, and you also don’t want to create dependency or expectations.
The concept of retirees helping adult kids is not new. Many retirees will answer the call on “the bank of Mum and Dad” for housing but with house prices falling, I’ve had a few queries about the merits of it. It’s much easier to feel confident handing over assets/security when your home equity and their home equity is growing. That double edged sword cuts deeper when reversed…
A lesser considered option for some is to help by contributing to your kid’s super. In fact, there’s a few advantages with this:
- You’ll essentially be adding to their investment pool which grows over time.
- It can’t be squandered in the short term.
- It alleviates the thinking that many adult kids don’t need short term help but lament that they don’t feel they’re getting ahead.
- It’s in super trust so potentially better legally protected compared to giving money for a kid’s business or if sued etc.
- Super isn’t directly affected by the recent CGT and trust tax changes (yet!)
- You get to limit/better control the amount of commitment; handing out cash often leads to more hands out, but less so if they can’t access it.
- You can pretty easily adapt your own estate planning within your super to manage any family equivalence concerns.
- You’re adding to a pool of funds that will be treated as a “tax free component” in their super, meaning that your grandkids could one day inherit those funds tax free if your kids pass away.
- Or you may help them by handing over the funds to allow them to reserve extra income as a salary sacrifice to super; that way, they get the contribution in their own pre-tax dollars.
Often retirees feel they have some spare capital they can help to “do some good with” and donate it to a charity or trust. They get a tax deduction but may not benefit from it. Perhaps making that “donation” closer to home can also do some good.
Thought should be given to estate matters as mentioned along with any Centrelink/ Aged care considerations around gifts, but if this has piqued your interest, give us a call to discuss if and how this might work for you…
