Gifting Tips
An alternative to a loan is, of course, a gift. Getting this transaction right is paramount – read on for our best tips.
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Gifting Tips
An alternative to a loan is, of course, a gift. Getting this transaction right is paramount – read on for our best tips.
Gift what you can afford All parents want the very best for their children.
Which means that if you decide to gift your son or daughter money there’s the ever-present temptation to be overly generous – not in terms of what they deserve but what you can actually afford. The last thing you want is to give a family member or friend an amount of money which, on reflection, causes you distress. It will stir up animosity and anxiety that may ultimately poison and destroy a relationship. So if you’re planning to give someone you love money take a breather and make sure the amount is not to going to cause you financial hardship, burden you with second thoughts (let’s call it “gifter’s remorse”) or, the down track, stir up resentment. You’re gift of money is a gesture to be treasured. Make sure it stays that way for all parties.
Consider the impact of your gift on a relationship Giving money to a family member or friend will change that relationship forever.
No matter the amount – it could just enough to cover a couple of months’ rent during a period of unemployment or might be a car that allows your son or daughter to leave home – it will alter the way you relate to each other. While human affairs are unpredictable you should use all your wisdom and experience to predict the impact of your gift on someone you love. Most likely, it will deepen the bond between you as it is a material representation of your care and concern. In some cases, however, the money can lead to conflict. For example, if the giver is not okay with what the receiver spends the money on it could end a relationship forever. So consider careful the effect of your generosity. It will guide the amount of money you give and the terms on which it is handed over.
How does a gift impact on your will?
Many grandparents and parents consider the gift of a sizeable sum a part of a legacy given when it’s most needed (often we received money at a time in our lives when we need it least). While your generosity is to be applauded it is where gifting has the most potential to cause family crisis. If you die and the money gifted to a family member is not documented it can be drawn into the will, with the gift being recategorised as a loan. The late parent or grandparent and the person who received the money understand it to be gift. But in the eyes of other family members and possibly the law it could be regarded as a loan, therefore included in the will and fall under that legal document. It is perhaps the strongest argument for properly documenting a gift even if it sounds a little impersonal.
Gifting can impact your financial circumstances Another important consideration when gifting money are the tax implications.
In Australia a gift of money is not taxable for either the giver or receiver. However, if the money gifted is connected to the sale of an asset such as an investment property or share portfolio then it may give rise to capital gains tax. Also, if the money is gifted by somebody who is on an age pension there is a limit of $10,000 that can be given away before it affects the pension. When it comes to tax advice, however, everyone has their own particular set of circumstances. So before gifting money to a family member or friend it is worth consulting a tax professional. The last thing you want is for your generous action to attract is an expected tax hit or, even worse, a fine.
Document the gift and keep good records The idea of documenting a gift seems crazy.
Document the gift and keep good records The idea of documenting a gift seems crazy. A gift is a gesture of friendship, an act of love. However, when sizeable amounts of are involved a gift moves into the terrain of a financial transaction, with all the pitfalls and challenges that involves. So you must be careful to ensure your selfless gesture does not result in jealousy, animosity and tension that has the potential to destroy a family or a close friendship. The best way of doing this is to draw up a contract that lays out clearly the terms of the gift (yes, even a gift comes up with terms, such as what is the money to be used for). And all records of the transaction and anything to do with the money needs to be kept in good order. They may never be consulted again. But if at a later date questions are asked, such as during the execution of a will, this documentation could be the difference between a happy family and the destruction of lifelong relationships.
Stick to your agreement If you’re going to have an agreement with someone you have gifted money it is of primary importance that you stick to the terms of that agreement.
Indeed, it is even more important that you stand by what you agreed upon than if you never offered money in the first place. Nothing will drive a wedge between family members or friends than if one of the parties reneges on the agreement, be it a handshake agreement or a written contract. The trust you have built up over the years will be ruined. The big advantage of a contract that’s been signed by both parties is that it is a document to which you can both return. And because the terms of the gift have been written down it will encourage both parties to stick to the agreement. There is nothing like signing off on something (quite literally) to keep what you agreed upon the top of mind.
Consider the impact of the gift on other members of your family No matter how close are members of a family or circles of friends when it comes to money and gifting strange things happen.
Consider the impact of the gift on other members of your family No matter how close are members of a family or circles of friends when it comes to money and gifting strange things happen. What begins as a heartfelt gesture can quickly be poisoned by jealously and favouritism and dredge up ancient animosities. So if you are planning to gift a sizeable sum to one of your family members or a friend you need to give serious thought about how you’re going to approach it. Will you keep it as a private transaction between you and the family member or friend? Will you explain the reason for the gift to other family members? Will you be will to get into a discussion about the size of the gift and any terms agreed upon? Are you prepared if one of your other children declare they are in need of money as well? Giving a son or daughter money is a gesture of pure love. But be prepared for the real-world impact.
See if there is another way to help When a family member or close friend experiences financial difficult giving them money is a natural reflex.
We love them and we don’t want to see them suffer. But simply handing over a lump sum might not be the best approach, especially if they’re current predicament can be traced to their poor financial management. A gift, no matter how generous or timely, may offer temporary relief from a problem that will emerge again and again. So before dipping into your savings sit down with your family member or friend and examine if there are other approaches to the problem. For example, your experience in managing money may be invaluable in helping them curtail expenses and prevent the need for a loan. Or you may be able to gift something of your own — a motor vehicle, for example, or a computer — that will allow you to upgrade and your son, daughter or friend to solve a problem without the issue of money being raised. And, of course, a loan is another option. Before reaching for your wallet look at the options. There will be more than you think.
Treat it like a business transaction A gift is the farthest thing imaginable for a business transaction.
You don’t expect the money back so you’re not behaving like a lending institution. However, giving money to someone in need should be underpinned by a business-like approach or it has the potential to poison relations. And the last thing you want is for something from the heart to destroy what you most valueK. So it is important that a gifting a family member or close friend money be treated as if it were a business transaction. If the gift is for a special purpose that needs to be spelled out and agreed upon. And to make sure that there is absolute clarity in the arrangement the terms of that gift should be signed-off in terms of a contract. Even though this sounds off-puttingly formal and might be awkward to initiate. But once the agreement is in place it can be forgotten about and only referred to if there is an issue. Complete clarity is the best way to ensure relationships remain strong.
Understand how a gift to a family member can be shared by their partner One of the most important benefits of a gift being treated like a business transaction is that it will clarify how the money is to be shared by the recipient’s partner.
Relationships have never been more complex that at any point in history; you cannot assume that two people living together are just like your grandparents. So when you offer to give money you need to understand how your son or daughter’s partner is going to share in or benefit from the gift. This doesn’t need to be an anxiety-inducing process. It simply becomes part of the initial discussion around the gift and the agreement you strike. So if you prepare a written agreement or contract, as we advise you do, the way the money is the be shared or accessed is a natural part of that contract. Again, none of this need be stressful. It is simply a part of the discussion and the arrangement that will form the basis of the contract.
Gift what you can afford All parents want the very best for their children.
Which means that if you decide to gift your son or daughter money there’s the ever-present temptation to be overly generous – not in terms of what they deserve but what you can actually afford. The last thing you want is to give a family member or friend an amount of money which, on reflection, causes you distress. It will stir up animosity and anxiety that may ultimately poison and destroy a relationship. So if you’re planning to give someone you love money take a breather and make sure the amount is not to going to cause you financial hardship, burden you with second thoughts (let’s call it “gifter’s remorse”) or, the down track, stir up resentment. You’re gift of money is a gesture to be treasured. Make sure it stays that way for all parties.
Consider the impact of your gift on a relationship Giving money to a family member or friend will change that relationship forever.
No matter the amount – it could just enough to cover a couple of months’ rent during a period of unemployment or might be a car that allows your son or daughter to leave home – it will alter the way you relate to each other. While human affairs are unpredictable you should use all your wisdom and experience to predict the impact of your gift on someone you love. Most likely, it will deepen the bond between you as it is a material representation of your care and concern. In some cases, however, the money can lead to conflict. For example, if the giver is not okay with what the receiver spends the money on it could end a relationship forever. So consider careful the effect of your generosity. It will guide the amount of money you give and the terms on which it is handed over.
How does a gift impact on your will?
Many grandparents and parents consider the gift of a sizeable sum a part of a legacy given when it’s most needed (often we received money at a time in our lives when we need it least). While your generosity is to be applauded it is where gifting has the most potential to cause family crisis. If you die and the money gifted to a family member is not documented it can be drawn into the will, with the gift being recategorised as a loan. The late parent or grandparent and the person who received the money understand it to be gift. But in the eyes of other family members and possibly the law it could be regarded as a loan, therefore included in the will and fall under that legal document. It is perhaps the strongest argument for properly documenting a gift even if it sounds a little impersonal.
Gifting can impact your financial circumstances Another important consideration when gifting money are the tax implications.
In Australia a gift of money is not taxable for either the giver or receiver. However, if the money gifted is connected to the sale of an asset such as an investment property or share portfolio then it may give rise to capital gains tax. Also, if the money is gifted by somebody who is on an age pension there is a limit of $10,000 that can be given away before it affects the pension. When it comes to tax advice, however, everyone has their own particular set of circumstances. So before gifting money to a family member or friend it is worth consulting a tax professional. The last thing you want is for your generous action to attract is an expected tax hit or, even worse, a fine.
Document the gift and keep good records The idea of documenting a gift seems crazy.
Document the gift and keep good records The idea of documenting a gift seems crazy. A gift is a gesture of friendship, an act of love. However, when sizeable amounts of are involved a gift moves into the terrain of a financial transaction, with all the pitfalls and challenges that involves. So you must be careful to ensure your selfless gesture does not result in jealousy, animosity and tension that has the potential to destroy a family or a close friendship. The best way of doing this is to draw up a contract that lays out clearly the terms of the gift (yes, even a gift comes up with terms, such as what is the money to be used for). And all records of the transaction and anything to do with the money needs to be kept in good order. They may never be consulted again. But if at a later date questions are asked, such as during the execution of a will, this documentation could be the difference between a happy family and the destruction of lifelong relationships.
Stick to your agreement If you’re going to have an agreement with someone you have gifted money it is of primary importance that you stick to the terms of that agreement.
Indeed, it is even more important that you stand by what you agreed upon than if you never offered money in the first place. Nothing will drive a wedge between family members or friends than if one of the parties reneges on the agreement, be it a handshake agreement or a written contract. The trust you have built up over the years will be ruined. The big advantage of a contract that’s been signed by both parties is that it is a document to which you can both return. And because the terms of the gift have been written down it will encourage both parties to stick to the agreement. There is nothing like signing off on something (quite literally) to keep what you agreed upon the top of mind.
Consider the impact of the gift on other members of your family No matter how close are members of a family or circles of friends when it comes to money and gifting strange things happen.
Consider the impact of the gift on other members of your family No matter how close are members of a family or circles of friends when it comes to money and gifting strange things happen. What begins as a heartfelt gesture can quickly be poisoned by jealously and favouritism and dredge up ancient animosities. So if you are planning to gift a sizeable sum to one of your family members or a friend you need to give serious thought about how you’re going to approach it. Will you keep it as a private transaction between you and the family member or friend? Will you explain the reason for the gift to other family members? Will you be will to get into a discussion about the size of the gift and any terms agreed upon? Are you prepared if one of your other children declare they are in need of money as well? Giving a son or daughter money is a gesture of pure love. But be prepared for the real-world impact.
See if there is another way to help When a family member or close friend experiences financial difficult giving them money is a natural reflex.
We love them and we don’t want to see them suffer. But simply handing over a lump sum might not be the best approach, especially if they’re current predicament can be traced to their poor financial management. A gift, no matter how generous or timely, may offer temporary relief from a problem that will emerge again and again. So before dipping into your savings sit down with your family member or friend and examine if there are other approaches to the problem. For example, your experience in managing money may be invaluable in helping them curtail expenses and prevent the need for a loan. Or you may be able to gift something of your own — a motor vehicle, for example, or a computer — that will allow you to upgrade and your son, daughter or friend to solve a problem without the issue of money being raised. And, of course, a loan is another option. Before reaching for your wallet look at the options. There will be more than you think.
Treat it like a business transaction A gift is the farthest thing imaginable for a business transaction.
You don’t expect the money back so you’re not behaving like a lending institution. However, giving money to someone in need should be underpinned by a business-like approach or it has the potential to poison relations. And the last thing you want is for something from the heart to destroy what you most valueK. So it is important that a gifting a family member or close friend money be treated as if it were a business transaction. If the gift is for a special purpose that needs to be spelled out and agreed upon. And to make sure that there is absolute clarity in the arrangement the terms of that gift should be signed-off in terms of a contract. Even though this sounds off-puttingly formal and might be awkward to initiate. But once the agreement is in place it can be forgotten about and only referred to if there is an issue. Complete clarity is the best way to ensure relationships remain strong.
Understand how a gift to a family member can be shared by their partner One of the most important benefits of a gift being treated like a business transaction is that it will clarify how the money is to be shared by the recipient’s partner.
Relationships have never been more complex that at any point in history; you cannot assume that two people living together are just like your grandparents. So when you offer to give money you need to understand how your son or daughter’s partner is going to share in or benefit from the gift. This doesn’t need to be an anxiety-inducing process. It simply becomes part of the initial discussion around the gift and the agreement you strike. So if you prepare a written agreement or contract, as we advise you do, the way the money is the be shared or accessed is a natural part of that contract. Again, none of this need be stressful. It is simply a part of the discussion and the arrangement that will form the basis of the contract.
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