Ask Paul: I want to give my kids $150k each, what could go wrong?
I own my house, which is worth $850,000, with no mortgage.
I would like to buy an apartment around $450,000 and give each of my two children $150,000 for a deposit on a house.
My son would like to use that deposit to purchase my house. How do I go about it? - Linda
Here we are in dangerous waters, Linda. I absolutely support your intent. With the long lives we are living these days, leaving 60- or 70-year-old children an inheritance is not really of much value to them.
But I have a very strong view about helping the kids. First, we must make sure we are financially secure. At our age, we cannot rebuild wealth, while our children still have many decades in front of them to work and create savings.
If your house is your primary asset, its sale and subsequent purchase of an apartment leaves you with a home, which is critical.
But then we must look at the security of your income. You may still be working, or if you are getting close to retirement, how is your super? Will you go onto an aged pension in time to come?
Your plan, which is really generous towards your kids, sounds like a nice idea. But I am deeply troubled that you are not putting yourself first. Sadly, I see well-meaning parents end up in poverty over kids' loans gone wrong.
Sure, your son could borrow around $700,000, allowing him to pay you out and retain the $150,000 you want to give him. Then you could give your daughter $150,000 and buy an apartment.
I fret about much family disharmony here. How does your daughter feel about this? Is the value a genuine market value for your home? What if the kids have a relationship breakdown? Does your generosity then go to others?
Your seemingly simple question is actually incredibly complex. I strongly suggest you go to a trusted adviser, an accountant or a solicitor and discuss all the pitfalls before you proceed.