When to gift the inheritance

Is there a right or wrong time to gift your children the inheritance?

It is a complex question and emotional financial decision-making can result in unnecessary risk.

With soaring house prices and interest rate uncertainty, the temptation to go early and help the next generation enter the property market is tempting.

While there are benefits to gifting an inheritance while you are still alive, waying up the pros and cons is important before making a decision that affects your children and, more importantly, your standard of living.

Why gifting an inheritance early is a good thing to do

Why gifting an inheritance early is a good thing to do

Withdrawing from your superannuation while you are still alive and gifting it to your children or other relatives comes with taxation benefits.

After you have passed away, superannuation inheritance incurs a 15% tax. By withdrawing on superannuation while you are alive and gifting that to your beneficiaries, you will avoid the 15% tax.

Gifting and early inheritance also mean you will have less asset value, which may provide a higher aged pension payment.

It will only be of value after five years from the gifting date.

When you have reached preservation age (retirement), depending on when you were born, downsizing by selling your current property and purchasing a smaller property of less value enables you to add the proceeds to your superannuation. These proceeds are taxed lightly or not at all, and you can provide a tax free inheritance payment to your beneficiaries. There are limits on how much you can add to your superannuation from this strategy and we highly recommend that you seek professional advice.

What you should think about before gifting an early inheritance

What you should think about before gifting an early inheritance

Gifting an inheritance early has obvious immediate benefits to your children and, quite likely, yourself as well. It will undoubtedly help them enter the property market, get them off your couch, and help them to begin living independently.

But there are financial considerations for your circumstances.

We are living longer and retirement lifestyle and length have changed dramatically over the past four or five decades.

There are significant financial expenses in retirement.

Insurance, medical expenses, aged care needs, utilities, subscriptions, travel, inflation, fuel and general cost of living expenses are rising and will continue to do so over the term of your retirement. Before making any inheritance commitments, you must factor these and other costs into your retirement budget.

Another alternative

Another alternative

There is an alternative option to help your children get a foothold in the property market. With sufficient home equity, parents can become guarantors on their children’s home loans.

This option has a level of complication and parents must handle it cautiously.

Parents must go into this alternative with eyes wide open and be fully aware of their exposure, should anything go wrong.

Using existing home equity provides a pathway for easier loan approval and avoiding mortgage insurance.

It does not cost the parents any additional expense so long as the borrowers make their mortgage repayments on time.

But if there is a default on the mortgage, the guarantors (in this case, the parents) are liable to cover the promised sum, which is the amount over 80% of the LVR.

We highly recommend that parents seek legal and financial advice before entering into this agreement.

How we can help

How we can help

North Advisory is a specialist financial advisor and wealth management service.

We have the expertise to provide the most beneficial financial advice for individuals looking at estate planning and how to maximise their superannuation for inherited wealth or inheritance gifting.

We access the latest information, regulations and legal knowledge to ensure you can protect yourself and have the necessary information to make informed and calculated financial decisions for you and your beneficiaries.

Our team members are highly qualified, professional and experienced financial advisors and wealth managers specialising in various financial instruments that grow and protect your wealth.

Contact us today for strategic advice regarding estate planning, asset protection and maximising your superannuation.

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