Gifting Money of sold property.

[albanga]

Hey All,

Quick question. What considerations need to be made if your parents were to gift you and your sibling the sale proceeds of one of their properties?

What are the considerations for the parents? Keeping in mind they have enough income producing assets to fund retirement. Are there taxation considerations?

Likewise what are the considerstions for the children? Would this need to be declared to anyone? Both children have PPOR debt where the funds would go towards.

 

[Paul@PFI]

No tax consequences provided they have reported the cgt profit if any. There are other considerations:
- Deceased estate issues
- Risk to loss of that capital to siblings bankruptcy, marriages, etc. This may be the greater problem.
- Parents have a potential to have this affect govt entitlements for next 5 years. The gift would fall under gifting rules. This may be unlikely.

The asset risks are the grater issue. I have always wanted a bank to offer an offset where mum and dad can deposit funds and it offsets the kids loan. This may be a fantastic asset protection strategy. Unfortunate banks only offer offsets for same account names.

 

[albanga]

Like always great reply Paul and thanks for responding so quickly.
The key issue of loss of capital, can anything be done about that?

I mean if your parents gifted you the money and you then went and invested poorly or gambled and drank it away, fact is it is gone.
What about marriage break-up, can a clause be written into a gift that stipulates in the event of a divorce the partner cannot touch the gifted money (if it has not been spent).

The idea about an offset is absolutely brilliant! But banks won't ever bite because that's less interest.

 

[Terry_w]

Yes Paul has it
- Death issues for both the parents and the children. If children would die then the gift would pass via their estate. If parents were to die they cannot will this gift. It might be better as a loan that converts into a testamentary discretionary trust upon their death.

Asset protection on bankruptcy and family law. Consider likelihood of parents going bankrupt and claw backs. Who should gift you, one or both?

For family law it would be better as a loan too. You can't have a conditional gift otherwise it wouldn't be an absolute gift.

And social security issues.

Tax strategies could also be considered - them lending to you at market rates.

Whatever you do make it properly documented.

 

[Paul@PFI]

Like always great reply Paul and thanks for responding so quickly.
The key issue of loss of capital, can anything be done about that?

I mean if your parents gifted you the money and you then went and invested poorly or gambled and drank it away, fact is it is gone.
What about marriage break-up, can a clause be written into a gift that stipulates in the event of a divorce the partner cannot touch the gifted money (if it has not been spent).

The idea about an offset is absolutely brilliant! But banks won't ever bite because that's less interest.

There is a way to structure a parent loan to an offset. Its just messy. They need to lend (using an agreement) to the adult child and spouse with strict terms requiring that he fund be dealt with in only an agreed offset account and that addresses that the parent funds are not unsecured but are a secured loan against that specific account. Lawyers can assist with drafting such a agreement and the security / charge.

 

[albanga]

On assert protection, what happens in the event the parents were to divorce? Would the partner have the right to come after the gifted money?

For example house in the mums name and is then sold and gifted. 5 years later the parents divorce and are splitting the estate. Would the father have any claim to the gifted money?

 

[Paul@PFI]

On assert protection, what happens in the event the parents were to divorce? Would the partner have the right to come after the gifted money?

For example house in the mums name and is then sold and gifted. 5 years later the parents divorce and are splitting the estate. Would the father have any claim to the gifted money?

Not after 5 years but a recent gift / transfer etc could be clawed back or adjusted in the final settlement in FC orders. eg : Dads share of matrimonial assets may be reduced by his gift to his son. The FC don't care whose name title is / was held in. They ignore mosts trusts, companies etc too.

 

[Terry_w]

On assert protection, what happens in the event the parents were to divorce? Would the partner have the right to come after the gifted money?

For example house in the mums name and is then sold and gifted. 5 years later the parents divorce and are splitting the estate. Would the father have any claim to the gifted money?

Not really, but it can taken into account in the division of assets under s79. It doesn't matter when it occurred either.

 

[albanga]

Thanks Paul and Terry.