Many parents prefer to help their children during their lifetime: a deposit for a home, capital for a business, or assets transferred early so the next generation can build on them. Giving while living can be generous and practical, but it changes the estate plan and can create problems later if it is not documented.
Gift, loan or trust?
- Outright gift. The child owns the money or asset. It is simple, but if the child separates from a spouse, becomes bankrupt or falls out with the family, the gift may be lost to the family.
- Documented loan. A loan agreement, often repayable on demand, keeps the parent’s claim. It can later be forgiven, or dealt with in the will, and generally gives better protection in a family law property settlement. See family loans or gifts in estates.
- Transfer to a family trust. Assets held by a discretionary trust are not owned by any one child, which can improve protection, but control of the trust then becomes the key question. See who controls a family trust.
Points that are often missed
- Equality between children. Lifetime gifts to one child should be recorded so that the will can take them into account, if the parent wishes, and so that other children understand what happened.
- Tax and duty. Gifts of assets other than cash may be treated for capital gains purposes as a sale at market value, and gifts of land in Victoria generally attract stamp duty on market value. Gifts from overseas trusts may be taxable to the Australian recipient.
- Notional estate. In Victoria, assets given away during life are generally outside the estate for family provision claims. In New South Wales, certain transactions can be brought back into a “notional estate”. See notional estate in Victoria and New South Wales.
- Pension and aged care rules. Gifts above certain limits can affect government pension and aged care assessments.
- Funds from overseas. Money brought into Australia from China, Hong Kong or elsewhere should be documented as to its source, and must comply with the foreign exchange rules of the country it leaves.
Planning the whole picture
Lifetime gifts, the will, trusts, superannuation and insurance should form one coherent plan. A gift made today should be consistent with what the will says tomorrow, and with what the parent may need for their own care later.
How we assist
We document family gifts and loans, prepare deeds of gift and loan agreements, set up trust arrangements and align them with the parents’ wills and enduring powers of attorney. This article is general information only; tax outcomes should be confirmed with a qualified tax adviser. Justin Chua is a Nationally Accredited Mediator and an Affiliate member of STEP, the worldwide professional body for trust and estate practitioners.
Frequently asked questions
Is it better to give children money now or leave it in a will?
It depends on the family’s goals, the children’s circumstances and the parents’ own future needs. Lifetime help can be valuable, but it should be documented and coordinated with the will.
Should money given to a child be a gift or a loan?
A documented loan generally gives the parent more protection, for example if the child separates from a spouse. A gift is simpler but cannot be recalled.
Are gifts to children taxed in Australia?
Australia has no gift tax, but gifts of assets other than cash may have capital gains tax and stamp duty consequences, and money from overseas trusts may be taxable.
Can gifts made during life be challenged after death?
In Victoria, gifts made during life are generally outside the estate for family provision claims. In New South Wales, some may be treated as notional estate.
Chua Tan Associates advises families, executors, trustees and their professional advisers on estate planning, estate administration and estate disputes, in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice. Victorian law unless stated otherwise.
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