Help your clients gift well


As an adviser, you are probably aware that your clients are increasingly considering the needs of their grandchildren when deciding how they want to use their money to help their family.

Passing on wealth can be one of our greatest gifts to our family and it's important to consider the benefits and potential drawbacks of what is called, intergenerational wealth transfer.

Different ways to give

Intergenerational wealth transfer includes many different ways of giving, including business succession planning, leaving a legacy for the family or simply helping out with important financial events in their family's lives. Sydney-based BT Financial Adviser, Richard Kerkmez, says a growing number of his clients are looking for advice on the best way to use their money to help their grandchildren.

More involved than before

"I'm finding that grandparents are now playing an increasingly important role in bringing up their grandchildren," Kerkmez says. Many of my clients are looking after their grandchildren while their parents are at work and so have a greater involvement in the day-to-day lives of their grandchildren.

"At the same time, housing affordability has become a huge issue, particularly for first home buyers. So, many clients are wanting to help their grandchildren with the deposit and/or repayments for their first home."

Asking the right questions

Typically, strategies around wealth transfer is about having the right money in the right hands at the right time. This means different things for different types of people. For this reason, Mr Kerkmez says it is very important to ask the right questions to help clients get very specific about their goals. Spend a great deal of time asking questions, listening and probing to uncover what my clients are really trying to achieve. "Only then will I be able to gain their trust and design the right strategies to help them achieve their goals," he says.

For instance, a client may say they want to help their grandchildren with their first home. Aside from the usual questions on cashflow, assets and liabilities, I ask:

  • Do you want to help pay for the deposit and/or repayments?

  • Do you want to invest this money in them now, at retirement or include it in your legacy?

  • How much money will you be able to use after you have provided for your own retirement?

  • What is the income of their parents? Are your grandchildren financially dependent on you?

The answers to these questions may lead them down very different structural tracks to maximise tax efficiency such as family discretionary trusts, testamentary trusts, or gifting.

6 key issues grandparents should consider

Here's a checklist of issues to consider when you want to help out the grandchildren.

  • Age and income of the grandchildren: Remember investment income for minors is taxed at penalty rates (up to an effective rate of 45%). Whereas, for over 18s, investment income up to $20,542 may be tax free. This can be particularly important when developing strategies to help pay education costs.

  • Centrelink benefits: If clients receive a pension or part-pension from Centrelink, they are only able to gift up to $30,000 every five years at a maximum of $10,000 per year without adversely affecting their entitlements.

  • The right team of experts: Make sure your client has access to all relevant specialists such as accountants and estate planning lawyers.

  • Relationship risks: Encourage clients to think about the risks associated with relationship breakdowns in the family, such as sibling rivalry on the death of a parent and divorce of any family members. This could mean a gift for a grandchild ends up as an asset to be fought over in divorce courts. Consider the appropriateness of testamentary trusts or drip feeding financial assistance rather than gifting lump sums.

  • Pay themselves first: According to Kerkmez, grandparents sometimes fall into the trap of being, too generous and not properly considering their own living and lifestyle needs in retirement before deciding how they will help out their family. Make sure your clients understand the money they require before committing to help out their family.

  • Manage family risk: Families are often called on for help in the event of illness and injury of a child or grandchild. Talk to your clients about whether they might be willing to help pay for their grandchildren's income protection or trauma premiums with their own so they can look after their family while reducing the risk of financial stress on them.

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This information is current as at 31/07/2017.

BT Financial Group - A Division of Westpac Banking Corporation. This document provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information does not constitute financial advice. It has been prepared without taking account of your objectives, financial situation or needs. Because of this, before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation and needs. Information in this blog that has been provided by third parties has not been independently verified and BT Financial Group is not in any way responsible for such information.