A question we often hear is; “Should I gift money to adult children or wait and leave it via an estate?”

It’s a common dilemma for many retired people; they have access to the largest sum of money of their life, while the kids are struggling with mortgages and the costs of raising a family. Should they help out now when the money is most needed? That is up to the individuals involved. Can they afford to? Well, that depends.

The first thing that people need to get clear is that there is no taxing of gifts. If a parent wants to give one of their kids $300,000 to pay out the mortgage, they can. It will not be taxable in the hands of the children and there is no tax penalty on the parents.

This said, the long term implications need considering. Most importantly, retirees need to be sure they don’t leave themself short. Chances are that once they gift some money, the children won’t be in a position to pay it back later.

A good rule of thumb is to multiply your annual income need by 20. This will give you the approximate capital required to fund your income without a high risk of your money running out. Once you have that number, increase it. Perhaps by 25%. This will give you the extra safety buffer for unexpected costs such as household repairs, vehicle upgrades and medical expenses.

For those that have a surplus after considering these issues, a gift may just be affordable.

For retirees on a Centrelink Age Pension, or those hoping to get one in the future, deprivation also needs considering. Under Centrelink rules, pensioners may only give away $10,000 per year, and no more than $30,000 over 5 years. Amounts in excess of this will be counted for the income and assets test for 5 years. Put simply, it means giving away assets will not increase Centrelink payments, at least in the short term.

While considering the gifting of cash is reasonably straight forward. An alternative is to give away an asset, such as a rental property. This comes with the added cost of stamp duty to be paid by the new owner. It also has tax implications. The tax office will assume that any asset disposed of for no money, was disposed of at its market price. And they will tax the seller on any capital gains accordingly.

Other than making simple gifts, there are also other alternatives to consider. One example would be the establishment of a family trust; which could allow the children to receive some income without getting the capital.

While the decision to help out family is an intensely personal one, it is wise that anyone looking at making a substantial gift seeks professional advice first. There are a number of possible implications that need to be considered and an adviser can help with these.