Retirement
5 tips for the bank of mum and dad
The economic fallout from the COVID-19 pandemic has seen an increase in children relying on the bank of mum and dad, with lawyers explaining the ramifications for future financial planning.
5 tips for the bank of mum and dad
The economic fallout from the COVID-19 pandemic has seen an increase in children relying on the bank of mum and dad, with lawyers explaining the ramifications for future financial planning.
Law firm Maurice Blackburn has advised parents to look at estate planning and how providing support today can have an impact on future inheritance.
“Given the current pandemic-related economic crisis, we expect more Australians will turn to their parents for financial assistance, including for living expenses like bills and rent,” said Andrew Simpson, a principal at Maurice Blackburn.
While understanding why parents are inclined to help their children during a difficult situation, the lawyer explained that on many occasions, it ends up coming between family members.
“I urge everyone who is giving or receiving money from family to document the terms of the arrangement to try and avoid any problems down the track.
“Something as simple as an email outlining whether the money is a gift or a loan can help avoid family disagreements and reduce the likelihood of legal disputes arising.”
Mr Simpson, who heads the wills and estates practice at Maurice Blackburn, said his top five tips when giving money to family are:
1. Document the arrangement in writing
For a smaller amount of money, it could be as simple as writing an email. For larger amounts of money requiring repayment, it may be worth drawing up a more formal loan document.
2. Clarify whether the money is a gift or a loan
Disagreements over this point are the source of many disputes, especially from siblings and other family members when it comes to administering a person’s will.
3. Review your will
Check if your will needs to be updated to include the gift or loan so that there is no “double dipping”. Questions to consider include whether the money is an advance on a child’s inheritance and whether repayment of the loan is required as part of estate administration.
4. Plan for any family law implications
Consider what happens if your adult child is in a relationship and that relationship breaks down. The money could end up in the general marital asset pool and you may need to go to court to get it back.
5. Consider whether you can afford to make the gift or loan
Do the sums and make sure that providing the money doesn’t leave you in a vulnerable financial position.
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