Meet Alister and Catherine, a lovely couple in their early 60s, enjoying their retirement. They have two adult children, both with families of their own. One of their children even runs a business. Alister and Catherine wanted to give their kids a financial boost now, while their grandchildren are still young and could really use the help, rather than waiting until after they’re gone.
The Challenge
Alister and Catherine were eager to help their children, but they had a few concerns. They wanted to make sure the money stayed within the immediate family, safe from in-laws and creditors. They also wanted to ensure their grandchildren would be financially secure if anything happened to their parents. They had seen friends struggle with raising grandchildren after a tragedy and didn’t want to face the same health, social, and financial challenges.
The Solution
We came up with a plan that ticked all their boxes. We set up private loan agreements, giving each of their children $100,000 to help reduce their mortgage debt. These loans required a minimal yearly interest payment and no principal repayment, just enough to make the contract valid. Each loan agreement cost only $100 to set up.
Here’s the clever part: if one of their children goes through a divorce or if their son’s business fails, Alister and Catherine can call in the loan. This protects their money from any family settlements or creditors. Later, they can re-gift the money to their children when the time is right. It might sound a bit tough, but they worked hard for their money and want to ensure it benefits their own children.
Additionally, Alister and Catherine set up an annual $1,000 super contribution (non-concessional) for each of their children and their spouses. This money is earmarked for life, disability, or income protection insurance. The bonus? Their families also received extra funds from the Government Co-Contribution, allowing them to purchase better insurance coverage with level premiums.
These contributions mean that if something happens to their parents, Alister and Catherine’s grandchildren will be financially secure. This strategy also protects Alister and Catherine’s nest egg, as their grandchildren won’t need their financial support if the worst happens.
They are more than willing to step in and care for their grandchildren if needed, but they’ve seen the toll it took on their friends and want to avoid the same fate.
The Benefits- Helping their children get ahead: By reducing their mortgage debt.
- Protecting the family’s money: From ex-spouses, de-facto partners, and creditors.
- Securing their grandchildren’s future: Ensuring their education and lifestyle are protected.
- Locking in lower premiums: By securing level premiums at a young age, their children benefit from lower insurance costs for life.
- Preserving their own nest egg: Keeping their retirement funds intact and providing a safety net.
Summary
There are smart ways to pass money to your adult children while protecting it from potential losses due to relationship breakdowns. Sometimes, funding insurance for your children is a more cost-effective way to safeguard everyone’s financial future.
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