4 Ways an Early Inheritance Could Change Your Child’s Life 

Providing for an inheritance is one of the most generous things you can do for your children, but timing can make all the difference.  As we are all on average living longer, it is becoming more common that an inheritance can come too late to make a meaningful impact.

Instead of waiting until you pass away to transfer your hard earned life savings to your children, you might be able to have greater impact on their lives by providing considered gifts at key life stages.  Below, we look at some of the ways this money could purposefully be put to use.

Getting A Home Deposit Over The Line

Saving up for a deposit is one of the biggest barriers to home ownership, and the continual climb of property prices can push it ever further out of reach for younger Australians.  This is where a bit of parental charity can make a major difference.

If you can assist with funding your child’s deposit, it can be just what they need to escape the rental market and jump onto the property ladder instead.  You don’t have to gift the full amount – even a partial contribution can help reduce their loan-to-value ratio and save them from having to pay Lenders Mortgage Insurance.

From here, a whole host of possibilities are unlocked.  If costs to service a mortgage are lower than rent then greater capacity to save could be realised which may in turn help with longer term goals like paying down loans, starting a family, or saving for a child’s education.

Getting Ahead on The Mortgage

If your child already has a mortgage, a modest financial gift can be deposited in their offset account or go directly towards paying down the principal.  Either way, any extra repayments will help reduce the balance on which interest is charged.

And if your child can keep up the momentum and pay more than the minimum required each month, they might see their interest payments steadily decline over time.  This can ultimately save them thousands of dollars and shorten the life of their loan by years.

Paying Off Higher Education Fees

While a HECS-HELP loan might be more tolerable than other types of debt, given income determines when and how much must be repaid, it is an additional financial burden.  And with indexation of the loan amount tied to inflation, the loan can linger for many years.

If you are in a position to help your child to pay down a HECS-HELP loan, this can free up your child’s cash flow for other purposes and make that bit easier to meet the rising cost of living.

It might also lower some of the hurdles to buying property, as lenders tend to include HECS-HELP debt in their loan serviceability tests.

Help Them Start Investing

It might not be as immediately helpful as some of the other options on this list, but establishing a structure and a habit to regularly invest is one of the most effective ways to beat inflation and grow savings over time.  If your child hasn’t tried their hand at investing, offering a small sum to get them started can give them the motivation they need to turn it into a lifelong habit.

Don’t Neglect Your Own Needs

Giving your kids smaller gifts sooner can give them a meaningful head start in life, and there is a joy in being around to see them put that money to good use.  But you will also need to be mindful of the potential impact on your own position.

Will you have enough savings left over to secure the retirement you want?  Are you still confident in your ability to manage unexpected expenses?  Will your Age Pension be affected?  These are all things you will need to consider before you make any decision to gift.

If you wish to discuss the prospect of providing assets to your children as an early inheritance, or as a component of your estate planning arrangements, please contact our office to arrange a time to meet and discuss.