Protecting gifts to children

No doubt in part due to the recent property boom and hugely inflated Sydney house prices, many parents have decided to give their children a head start by providing either a gift or an early inheritance, so that their children can enter the property market. However, with divorce rates at their highest ever in Australia, many parents fear that their children may lose some or all of the parents' gift in the case of family law proceedings or financial difficulties.

There are relatively simple, practical steps that a prudent parent, or grandparent, can take to protect such a gift.

Consider this recent very normal scenario.

One of our clients approached us after she had retired and received her superannuation payout. She had a surplus of available cash from which she wanted to provide her daughter with funds so she could purchase her first property in Sydney. Her daughter was single, and her mother was concerned about the possibility of a future relationship turning sour, resulting in the gift to the daughter not being secure in case of divorce or other family law settlement.

Our advice was that a mortgage should be registered against the new property to protect both the mother’s gift and the daughter’s interest in the property.

The assets were further secured by special clauses in the mortgage providing that if the daughter entered into a de facto relationship or marriage, the daughter must enter into a cohabitation agreement with the partner, with the agreement providing that the daughter’s partner shall make no claim in relation to the property.

A final security provided that the daughter was to revoke any previous wills and make a new will leaving the mortgaged property to her mother.

The bottom line…

Taking the relatively inexpensive step of placing a registered mortgage over a property in a situation where a parent helps a child in purchasing a property allows both the parent and the child the security of knowing that a gift, loan or early inheritance will be safe with the intended recipient.

For further information please contact Andrew Somerville.




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