Some good advice for parents

[Hillbilly]

Here's some sound advice for those of you who are parents and thinking of
giving your kids a "helping hand" at owning their first home:

A House Divided

Parents who help their off-spring buy a house should protect it from future claims by their former partners.

The deposit gap is a hurdle many young people find hard to clear. So parents often like to help their child buy a property but with divorce and separation so common, some terms may need to be established to keep their money in the family.

Parents who are going to help their child should get proper legal advice about how to document the terms of the loan. One way would be to loan the money rather than gift it. They would register a second mortgage behind the bank's mortgage with a loan agreement that reserves the right to charge interest from when the money was first borrowed, at typical second mortgage rates.

If the child's relationship goes wrong, then the parents can invoke the loan and the loan must be repaid. Because of the compounding effect of the interest, a large amount would be owed. The house would have to be sold, the bank's debt satisfied, then the principal plus interest repaid to the parents with little or nothing exposed to the ex's claims. The parents would have to pay tax on the interest but would get their money back.

Parents can also gift money, buy the property and let the child live in it rent-free, secure the loan with a caveat over the title, or the child and partner can enter a pre-nuptial agreement.

The golden rule for parents is to get legal advice and document precisely the conditions under which they're providing the money.

[Colapop]

Gotta try and buy a house for us all to live in first! Good advice though...

[peasea]

Lend them money by all means but GIVE them nothing. They don't respect it if you do.....

[James Deuce]

You can't gift significant amounts of money in NZ without having the bejeesus taxed out of you.

[Nasty]

I agree with this as one way of doing it, or you can set up a tenants in common agreement which means that you share ownership of the house, have a number of clauses in that to protect everyones investment and ensure that it works as intended. This is a really good way of doing things. I have now invested in two properties with the TIC agreements, I am protected the other owner is protected and all is working well.

[BigG]

Shove it in a Family Trust then nobody gets there hands on the money, if the relationship falls over then the House can be rented and get Tax back. ( I think )

[mstriumph]

You can't gift significant amounts of money in NZ without having the bejeesus taxed out of you.

mmmm i DREAM of having an amount of money significant enuff to have the bejeesus taxed out of me ...............

[yod]

Shove it in a Family Trust then nobody gets there hands on the money, if the relationship falls over then the House can be rented and get Tax back. ( I think )

yup...stick it in a trust

[Blackbird]

yup...stick it in a trust

Yup, and there are some nice tax angles too. A word of warning though. We've had our family trust for quite a few years and it was set up on a fairly shaky basis as we didn't know any better and the person who set it up was a bit dodgy. The IRD could have driven a bus through it. We did our homework again and have used a lawyer with a family trust specialist in the practice and likewise with our choice of accountant. For anyone interested in trusts, there are a couple of good introductory books by Martin Hawes available through any of the major boooksellers.

One is Family Trusts - A NZ Guide - Revised 2006 Edition, $29.95 inc GST. I think the other one is called Managing Family Trusts. Have them both somewhere.

[Finn]

Some better advice for parents... Educate them well and as soon as they have a job, they are on their own. Don't give them shit.

[Blackbird]

Some better advice for parents... Educate them well and as soon as they have a job, they are on their own. Don't give them shit.

Largely what we've done. Cleared their education debts and told them to stand on their own feet. They'll inherit our property but the rest is gonna get spent having fun before Mrs B and I are too old to enjoy it! That's why I'm giving up full-time employment in 11 months!

[merv]

Some better advice for parents... Educate them well and as soon as they have a job, they are on their own. Don't give them shit.

Yep and spend your money on bikes and ski (spending kid's inheritance) holidays.

I lose track of our ski holidays but we've had a few already this year; NSW in January, Wairarapa bike riding last month and its Cairns in July, then I better get on and book some more as I try to have at least one holiday booked in advance.

[Colapop]

Save your money and pay for their education... Hmm I like that advice... What's saving???