Could being the Bank of Mum and Dad come back to bite you later?
We all want to make sure our kids are looked after. It is what parents do.
The downsizing part of the housing journey can free up your capital, but remember, you may need it back. The potential for unintended consequences down the track are a reality, particularly when needing aged care.
Think of the steps from downsizing: a smaller home, the move to a retirement village unit and then the possibility of an aged care home.
Here are some stages where that money given away may be sorely missed:
1. Needing capital for an aged care deposit.
Not only does this save interest costs (8%+), but it also presents an opportunity to get an Age Pension—up to nearly $60k per annum for a couple. If the money is locked in a deposit on your children's homes, it will bite.
2. Running out of money when in a Retirement Village Unit.
Having no title means residents cannot borrow against their unit, and they face uncertainty in the timing of getting what is left of their incoming payment money back. There are rules for some access for aged care purposes, but it's not much help.
3. Applying for the Age Pension.
Gifts can be assessed (mostly) for 5 years. Don't be caught without access to the Age Pension or savings in the bank.
These are typical decisions of retirees that impact their access to capital:
Giving money to the kids
Buying annuities
Prepaid funerals
Signing up for a retirement village
Paying an aged care deposit
Our advice is to plan very carefully before giving up liquidity and access to capital, as you may need them later.
Brendan
