“Something magical happens when parents turns into grandparents. Their attitude changes from “money doesn’t grow on trees” to spending it like it does.”
– Sophia Loren
Becoming a grandparent can be one of the most exciting times of your life, and it’s often the case that finance is not the first thought that will pop into your mind. It won’t be long, however, before you start to consider how you can this new member of your family on the right path financially to secure their financial future.
Having the right strategy in place to create a solid financial foundation for your grandchild can make a huge difference. I’ve outlined some of the key considerations for you below:
1. Updating your Will
Your Will is the legal document that will dictate how your assets are distributed when you’re gone. Make sure that your Will is updated, particularly if you wish to see some of your assets distributed to your new grandchildren.
It’s also important to consider that whether your grandchildren are financial dependants or independent adults can impact on the tax treatment, so I’d recommend you seek professional advice here. There may be more appropriate structures to put in place depending on the situations.
2. Gifting to your Grandchild
You should also consider the implications on your own personal finances of gifting funds to your grandchild. If you’re receiving the Age Pension in Australia, it’s particularly important that you receive advice on what impact such a gifting strategy could have on your entitlements.
Individuals and couples have a ‘gifting free allowance’ of A$10,000 per year, limited to A$30,000 per 5 financial years. This is called the A$10,000 Rule and any amount exceeding the A$10,000 will be treated as a Deprived Asset which will be included as an asset and deemed under the income test assessment for a period of 5 years for your Age Pension allowance.
It would also be a wise move to notify Centrelink of your gift including both the date and amount to ensure your records are up-to-date.
3. Saving a Nest Egg for your Grandchild
Many grandparents that I meet want the opportunity to be able to put some funds aside on a regular basis for their grandchild’s future. This could be to cover their university fees or to help them in purchasing their first home in the future. This is a popular and admirable strategy, but it’s important to consider a few of the key implications of such a strategy.
One of the simplest methods is to open a bank account in the name of your grandchild, however it’s important to consider the tax implications. Minors under the age of 18 are taxed heavily once they earn over $417 per financial year. All this would take would be a minor with A$10,000 in the bank generating interest of just above 4.0% per year.
|$0 – $416||Nil|
|$417 – $1,307||66%|
Source: Australian Tax Office, www.ato.gov.au
*Please note that this does not include the 2% Temporary Budget Repair Levy
You could also consider investment options that allow you to transfer the ownership of such an investment at a pre-determined age for the grandchildren. In some cases, the investment earnings of such a portfolio would not impact the minor or the adult’s income so could be an ideal strategy, particularly once the amount exceeds A$10,000.
If you would like to help your new grandchild financially, please take a moment to develop the right strategy and seek professional advice to help you implement this correctly.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Adviser with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to international and local professionals in Singapore.
Book a complimentary consultation here.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.