Financial assistance to older children

Its common to sit down with a client couple in, say, their early sixties with, say $5m of assets between them. On enquiry you discover they have three adult children, all married, with young kids who are doing it a little tough and who would appreciate an early inheritance.

If Grandma lives to be say 90, then the kids will be in their sixties before any wealth passes to them.

It makes sense to extend the benefit of the family wealth now, while it can be appreciate. One good way to do it is to lend each child say $200,000 to pay off their home loan, with the interest on tick, ie not paid unless you ask for it. This saves the child the equivalent of nearly $27,000 of pre-tax income a year (ie say $14,000 of non-deductible interest). This cash can be used for school fees, family holidays, principal repayments or whatever your child prefers. It just cannot be wasted. The loan is documented as a loan and secured by a second mortgage (or at least a caveat documenting an un-registered second mortgage: this saves legal fees). In the ordinary course of things the loan remains outstanding forever. But if the child divorces the loan is called in, and is kept out of the marriage asset pool. Once the dust settles and its all over the loan amount is re-extended and life goes on again.

We find strategies like these are really helpful and make Grandma and Grandpa much happier than otherwise. Seeing the grandkids happy and doing well creates more pleasure than a bit more ink on a bank statement ever will.