As a financial planner, one common concern many clients have is deciding when and how to transfer
wealth to their children. While leaving an inheritance in your will is a traditional approach, some
prefer to gift money while still alive. This strategy can offer several benefits but also carries
potential risks. Below, we’ll explore the key advantages and disadvantages of gifting money to your
children before your death rather than waiting to leave it to them in your will.
Advantages of Gifting Money Before Death
Witness the Benefits of Your Gift
One of the most emotionally rewarding aspects of gifting during your lifetime is witnessing
your children enjoying the benefits of your generosity. Whether it’s helping them purchase a home,
fund education, or start a business, you can see firsthand how your financial gift positively impacts
their lives.
Reduce the Size of Your Estate (and Potential Tax Implications)
While Australia does not have an inheritance or gift tax, gifting significant portions of your estate
before death can reduce its size and, therefore, minimise administrative complexities or potential
future policy changes that may affect estate taxes. In some cases, strategic gifting can also reduce
any potential capital gains tax that might be triggered upon the sale of certain assets in the estate.
Help Children During Their Peak Needs
Many parents want to support their children during critical life phases, such as raising a young
family, purchasing a home, or navigating career transitions. Gifting early can provide immediate
financial relief during these years when your children may need it most, rather than later when they
are more financially stable.
Avoid Potential Family Disputes Over the Will
Sadly, family disagreements over inheritance are not uncommon. Gifting money before death can help ensure clarity and transparency in your intentions, potentially reducing the chance of
disputes later. You also have the opportunity to communicate directly with your children about how
you wish your financial legacy to be used, which can mitigate misunderstandings.
Disadvantages of Gifting Money Before Death
Risk of Insufficient Funds for Retirement and Health Care
One of the most significant risks of gifting too early is the possibility of depleting your financial
reserves. As life expectancy increases, so do the costs associated with retirement, health care, and aged care. Unanticipated expenses, such as medical emergencies or home repairs, could erode your
savings. Once the money is gifted, you no longer have control over it, which could leave you
vulnerable if you need those funds later in life.
Impact of Children’s Marital Issues
A key concern for many parents is what happens to the gifted money if their child goes through a
divorce. In the event of a marriage breakdown, gifts can sometimes be considered part of the
marital assets and may be divided between spouses. This risk varies depending on the
circumstances and legal structuring of the gift. Structuring the gift as a loan or placing the money in a
trust can potentially protect against this risk, but it requires careful legal planning.
Loss of Control Over the Assets
Once the gift is made, you no longer control how the money is used. If your children encounter
financial difficulties or make poor financial decisions, your gift may not be used in the way you
intended. For example, they might spend it on a risky investment or unnecessary luxury, leaving
them without the security the gift was meant to provide.
Centrelink Implications (for Age Pensioners)
For those receiving or planning to receive an age pension, gifting money could impact your eligibility.
Centrelink has gifting rules that limit the amount you can give away within a certain period without
affecting your entitlements. If you exceed the gifting limits, it could reduce your pension payments
or disqualify you altogether, potentially affecting your long-term financial security.
Uncertainty Around Future Financial Needs
No one can predict the future with certainty. Gifting large sums while you are still healthy and
financially secure might seem reasonable now, but unforeseen circumstances such as changes in
health, family dynamics, or economic downturns could make the decision regrettable. Retaining
control of your assets until death allows you more flexibility in responding to unexpected needs or
desires.
Balancing Gifting with Financial Security
If you are considering gifting money to your children but are concerned about the potential
drawbacks, it is essential to develop a financial plan that accounts for your future needs and
provides flexibility. A few strategies to consider:
Gift Smaller Amounts Gradually: Instead of making a large, lump-sum gift, consider gifting smaller
amounts over time. This allows you to retain the bulk of your savings for potential future needs
while still helping your children.
Create a Family Trust: A family trust can allow you to provide financial support to your children while
retaining control over the distribution of assets. Trusts also offer some protection in the event of a
divorce or other legal disputes involving your children.
Consult a Financial Planner: Given the complex nature of gifting, estate planning, and long-term
financial security, it’s wise to work with a financial planner to ensure that your decisions align with
your financial goals. They can provide a clear picture of how gifting will impact your
retirement, healthcare, and legacy and guide you toward the most appropriate strategy.
Conclusion
Gifting money to your children before death can offer both emotional rewards and financial
benefits, but it also comes with risks that must be carefully weighed. The decision hinges on your
personal financial situation, your children’s circumstances, and the legal implications involved. By
taking a measured approach and seeking expert advice, you can strike the right balance between
providing for your family and ensuring your own financial security.
Should you require further information about gifting money to children please feel free to contact
Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166 to book an obligation-free
appointment.
The information in this document does not consider your personal objectives, financial situation or
needs, so you should consider its appropriateness regarding these factors before acting on it. It is
important that your personal circumstances are taken into account before making any financial
decision, and it is recommended that you seek assistance from your financial adviser.