How times have changed.

I grew up in an environment where there was not much money around. You did whatever you could to get along. And that meant parents did not protect us in bubble wrap.

When I was a young lad, getting children into a car was easy. You just kept loading them in until the door did not close. That usually meant someone had an ashtray up their nose inhaling a packet of cigarette ash. Some would have their noses pinned to a window, and if you suffocated, you were considered weak. Your chances of losing a limb (or two) were quite high should you crash so we tended to place the fattest kid in the front in the vane, hoping that they would act as some kind of rudimentary airbag. I know in this woke culture, you cannot say anyone is  ‘fat’ or any of these things, so no doubt I will be cancelled, but this was the truth back then.

Not anymore. In my time, if you wanted money, you were on your own. Now? The kids tend to come to mum and dad and, worse, just expect the money to come rolling in.

Don’t get me wrong. Times have changed. I look around at house prices and think we have all gone insane. And then if you want anything done by a tradie or professional firm, you will think the way they charge they will retire on a yacht for 6 months.

Many will say that the consumption of too many avocado sandwiches is the real culprit or the purchasing of too many watches. Or shoes. Or both. There may be a bit of truth to that but honestly, we just live in a different era. It would almost be impossible to be part of a social network if you tried to live today in the world I grew up in. You would literally have no friends or colleagues.

So, the bank of mum and dad is the way our kids will go if they want to get themselves on the housing ladder. The question I get asked a lot is how should you do it? Do you give them money and hope for the best. You could but hope is not a great strategy and will be useless if you disapprove of how it is spent or if they happen to get into financial difficulties.

There are two ways you could give money to your children and protect it.

1.  Give them a loan.

At the very basic level, give your kids a loan. The important bit? Document it. If you don’t, you will end up crying because if you want it back, you will not get it back.

Why would you want it back? In the case of a divorce, you don’t want your kid’s ex-spouse to walk away with at least 50% of your money. And if your kids get themselves into financial difficulties, then at least you have a chance you will be covered, too. You can also ask for it back if your relationship with them breaks down or you just disapprove of their lifestyle. Your document does not have to be complex – only that the money is given as a loan and if there is interest being charged, but get one done professionally if you can.

If you want to take it one step further, you can secure the loan as a second mortgage on their home.

Do not underestimate the power of a signed document. We had a client who gave a loan to their son for him and his wife as a deposit for a home. It was always known to be a loan but not documented. During a divorce, the ex-spouse claimed it was a gift, and the son said it was a loan. The judge concluded it was a gift in the absence of documentation. The ex-spouse got to keep the house (which our client paid for), and the son has moved back to his parents’ home.

The problem with such a simple loan like this is if you get into financial difficulties or a claim is made against you. If you are owed monies by your children, any creditor of yours can go to your children to get what is owed to them. In other words, it is not asset-protected. So to get around that…..

2.  A Trust Loan with Security

You will think this is too complex or costly. But trust me, when $150,000 is on the line, spending $5,000 to protect it is nothing. Remember, nothing is a problem unless there is a problem. And when there is a problem, it is usually too late to fix it.

So how does this work?

Well, you set up a family trust. Instead of giving the money to your kids, you give it to the trust as a gift. The trust then gives a loan to your kids and secures it.

If anyone comes after you – they cannot attack your kids because they do not owe you anything, and the original money you gave to the trust was a gift, so they cannot come after you or the trust for that either.

You will control the trust so you in effect control the loan too. Simple but effective. It just requires planning and paperwork. And a bit of upfront costs.

Asset protection and structures is step 1 of our 9 steps to working less, having financial freedom and building wealth. If you would like more information on asset protection email Hitesh at hitesh@wowadvisors.com.au or Ros at ros@wowadvisor.com.au. Or call us on 07 3161 9548.