What to Consider Before Gifting Equity or Moving Investments to Cash
Helping adult children financially is a powerful gesture—and one that can affect both your heart and your balance sheet. Whether it’s assisting into the property market or offering a one-off financial gift, many Australians approaching retirement feel the urge to help. But determining how, when, or if you should provide assistance requires more than goodwill – it requires careful planning.
Gifting Equity? Understand the Risks and Responsibilities
Gifting equity in your home to help a child buy property is relatively common. However, before proceeding, it’s crucial to assess both the financial and personal implications. Is this something your child truly wants? A well-intentioned gift can sometimes become a source of stress or conflict if it doesn’t align with your child’s goals or readiness.
From a compliance perspective, Centrelink’s gifting rules are key. You may gift up to $10,000 per financial year (and up to $30,000 over five years) without impacting your Age Pension eligibility. Any amounts beyond this, including gifting home equity, are considered a deprivation of assets and may reduce future entitlements under Centrelink means testing.
Some parents opt for a guarantor arrangement, using their own home as security for their child’s loan. This avoids Lenders Mortgage Insurance (LMI) but introduces significant risk. If your child defaults, your own financial position could be affected. Licensee policies stress the importance of understanding liabilities where clients are acting as guarantors or entering into arrangements that could affect their estate or retirement plans.
Cash gifts may seem safer, but be mindful: ensure it's truly a gift, not a loan, and document it clearly. If your child is in a relationship, funds might become joint property, which could complicate matters in the event of separation. In family law matters, gifts can be treated as contributions to the marital asset pool.
Open and transparent communication with all parties is critical. Be clear about expectations – if it’s a gift, there should be no strings attached or assumptions of control over future decisions.
Feeling Safer in Cash? That Might Be the Greater Risk
During times of market volatility, it’s common to feel nervous and consider shifting to cash. However, reactive investment changes made without personal advice may expose you to further risk. Licensee advice standards highlight the importance of understanding the client’s risk profile, investment objectives, and long-term strategy before any action is taken.
Trying to time the market often results in missing the recovery. If you’re retired or nearing retirement, a diversified portfolio tailored to your risk tolerance is usually more appropriate than abandoning a long-term strategy in response to short-term fears.
If your investment choices are causing anxiety, consider reviewing your risk profile questionnaire (RPQ) or seeking personal advice rather than making execution-only decisions without guidance. Licensee policy notes that inappropriately categorising clients as execution-only may expose them and their adviser to compliance risks.
Before making any changes, speak with a licensed financial adviser or your super fund to understand how your investments fit within your long-term goals.
The $3 Million Holiday Home and Its Land Tax Sting
In states like Victoria, land tax on secondary properties has increased significantly in recent years, especially as property valuations have surged. For some retirees, a once-modest family holiday home may now attract substantial land tax or even trigger a land tax surcharge.
From a compliance standpoint, advisers are expected to assess whether retaining non-productive assets like a holiday home aligns with the client’s objectives and capacity to meet ongoing obligations. Options include:
Renting the property out to offset holding costs;
Exploring a reverse mortgage strategy (with appropriate licensing and suitability analysis); or
Selling the property and realigning capital toward retirement income or aged care planning.
Where multiple family members are involved, consider conducting a structured family discussion to align on future use, responsibilities, and potential legal implications. Emotional attachment must be weighed against sustainability and strategic benefit.
Starting a Pension Account? Timing is Critical
Starting an account-based pension (ABP) is a major decision with long-term consequences. The key rule under current legislation: once an ABP is commenced, you cannot add further contributions to that account.
You may, however, start multiple pension accounts. For example, if you’re over 65 and still working, you might transfer part of your super to begin drawing a pension while continuing to make contributions into your accumulation account. Later, these can be consolidated or drawn down based on your cash flow needs.
It’s vital to assess whether this strategy aligns with your income needs, tax considerations, and retirement objectives. Advice documents related to superannuation strategies must include clear disclosures about contribution caps, pension rules, and the implications of multiple accounts.
A common compliance risk is where pension advice is provided on an execution-only basis. Under licensee policy, starting or commuting a pension is specifically listed as a prohibited execution-only transaction, and requires a full advice process including a Statement of Advice (SoA).
Final Thoughts
From gifting equity to riding out market fear, managing legacy assets, or drawing down your super, each decision must align with your broader goals, financial capacity, and legal obligations. Avoid reacting emotionally or making large financial decisions without understanding the implications.
Regulations around Centrelink, superannuation, and tax can change frequently, so staying informed or seeking advice is essential. Wherever possible, seek personal advice that considers your full circumstances, and avoid relying on unqualified guidance.
Disclaimer: This article is for general informational purposes only and is not financial product advice. You should seek tailored advice from a licensed financial adviser before making financial decisions. Where personal advice is given, a Statement of Advice (SoA) should be provided.