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

paul clitheroe

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.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.
September 16, 2020 5.43pm

Be very, very careful. If you gift someone money, Centrelink may cancel or reduce any pension or benefit you may rely on - for a period of years. Centrelink has always ignored the home you live in as an asset (be it big or small), but this could change. Also, if you buy a cheaper home, the extra money you get from the sale of your first home will be treated as an asset. You should also check for any tax implications. If you get into difficulties later in life you cannot expect your relatives who have had money from you to be willing or able to help you out. The other problem which can arise is how such gifts might affect your will. Beneficiaries in the will may expect the earlier "gift" to be ignored when you draw up your will and leave different amounts to other beneficiaries. I am not a qualified expert on financial matters, but the above comments are based on what I have seen happen to generous friends.

Alyson Elvin
September 17, 2020 11.08am

I too have seen friends now totally reliant on just the pension because they gifted each of their 3 children money when they sold their house.

Samantha kotz
October 4, 2020 8.07am

I think it's a good idea, I am planning to do the same. Just check how it effects your pension if relevant under the gifting rules. Your smaller out goings on the smaller home will also free up some of your cash for living. As long as each child gets the same amount, there should be no issue. I have seen this arrangement make families grow stronger and you get to enjoy them getting a head start on life.