Should You Give Your Children Their Inheritance Early?
Most parents I work with give some thought to helping their children financially once they're adults.
The question that comes up more and more is whether to hand over some of that help now, rather than leaving it all in the will.
An early inheritance can make a far bigger difference to a child in their 30s than the same money arriving in their 60s. Whether it makes sense generally comes down to three things: whether the giver's own retirement is secure after the gift, how it interacts with Centrelink and tax rules, and whether the help builds the child's independence or replaces it. Australia has no gift or inheritance tax, but gifts above Centrelink's limits can reduce Age Pension entitlements for five years, and gifting assets rather than cash can trigger capital gains tax for the giver.
The first two are numbers. The third is the one that catches families out.
This comes from our podcast episode on Early Inheritances. You can listen below:
Is it better to give an inheritance before you die?
For many families it can be, provided the giver can comfortably afford it.
Timing is the argument. Money received at 30 can help with a home deposit, reduce a mortgage when the interest bill is at its largest, or take pressure off during the years of young kids and school fees.
The same amount received at 65 tends to land when the child is already established. Useful. Just less likely to change the shape of their life.
There's also something parents often tell me they value: seeing the help land, rather than imagining it.
The case against is mostly about the giver. People are living longer, and aged care costs are hard to predict. A gift can't easily be taken back if health or markets turn. For someone whose retirement only just works on paper, an early inheritance may leave them relying on the child later, which reverses the whole point.
That's why the first question in any early inheritance conversation isn't about the children at all.
How much money can I gift my children in Australia?
There's no legal limit and no gift tax.
The ATO states that gift money "does not form part of your assessable income and you don't have to declare it, regardless of the amount" (ATO Community, Tax on gifts and inheritances). That generally applies where the gift is voluntary and the giver receives nothing in return.
Australia is unusual here. Many countries tax large gifts or estates. We don't.
So the practical limits aren't legal ones. They're:
What the giver can afford without putting their own retirement at risk.
Centrelink, if the giver receives or may later apply for the Age Pension (next section).
Tax on assets, if the gift is shares or property rather than cash (the section after that).
The limit that matters most is usually the first one, and nobody sets it for you.
How does gifting money to children affect the Age Pension?
Gifts above set limits are still counted as the giver's assets for five years.
Under the Social Security Guide, a single person or couple can gift $10,000 a financial year, with no more than $30,000 over any rolling five-year period, without it affecting their pension. Anything above that is treated as a "deprived asset", maintained as the giver's asset "for 5 years from the date of the relevant gift" and subject to deeming (Department of Social Services, Social Security Guide 4.1.10).
In plain terms: the gift still goes ahead. The pension just doesn't go up because the giver now has less.
This catches people out when they gift a large lump sum shortly before applying for the pension. They expect a higher payment and find Centrelink is still counting money they no longer have.
Similar gifting rules can also apply in aged care means testing. For anyone who receives, or expects to receive, a Centrelink payment, it's worth checking the numbers before the money moves rather than after.
Do you pay tax on an early inheritance?
Generally not on cash. Often yes on assets.
A cash gift is generally not taxable for the child or the parent.
Gifting an asset is different. If a parent transfers shares or an investment property to a child, the ATO treats it as if the parent received full market value: "If you sell, transfer or gift property to family or friends for less than it is worth, you'll be treated as if you received the market value of the property for capital gains tax (CGT) purposes" (ATO, Transferring property to family or friends).
So a parent can give away a property, receive nothing, and still have a capital gains tax bill. Stamp duty may also apply to the transfer, depending on the state.
That's often the moment an asset gift becomes a cash gift instead, or a gift in the will instead.
Tax outcomes depend on individual circumstances, so this is one to confirm with a registered tax agent before anything is transferred.
Should money given to an adult child be a gift or a loan?
Some advisers suggest documenting help as a loan rather than a gift, mainly as protection if the child's relationship later breaks down.
It's a legitimate concern. A documented loan may be treated differently from a gift in a property settlement.
In practice, though, I can't recall ever seeing a family do it this way. Most prefer to keep things simple. And where a couple is buying together, both sets of parents often chip in anyway.
A loan also has its own Centrelink wrinkle. Money lent is generally still counted as the lender's asset, and if the loan is later forgiven, the Social Security Guide states that "deprivation rules apply" (DSS, Social Security Guide 4.6.5.65). So a loan that turns into a gift years later can still be caught by the gifting rules.
Whether a loan structure is worth the paperwork is a legal question as much as a financial one, and a family lawyer is the right person to ask.
Should you help your kids get into the property market?
This is the most common form of family help I see.
Property prices in Sydney and Melbourne mean saving a deposit on a single income in your 20s, possibly while paying off HECS, can take a very long time.
Where parents can afford it, a deposit gift can help a child start building equity years earlier. There's also the security of not being at the whim of a landlord, which younger clients raise with me often. It's a real stress and it's easy to underestimate from the outside.
A gift at this stage of life can also have a much larger impact than the same money left in a will 40 or 50 years later.
We've covered the property side in more detail in Should You Help Your Kids Buy Property?, including ownership and what happens if the relationship ends.
What are the pitfalls of an early inheritance?
The biggest one isn't tax or Centrelink. It's what the money does to the person receiving it.
Well-meaning parents can, by propping a child up, remove the need for that child to become independent. I've seen this with several different clients.
One client described his daughter and son-in-law regularly asking for help. New laptops for the grandkids. Braces. A bigger car. The underlying reason was that the son-in-law's business wasn't making money and didn't look viable. My client said his son-in-law would be better off closing the business and getting a job.
Without the handouts, that's exactly what would have happened. With them, the business could keep going, making no money, for years.
Another family owned a very successful business and employed their daughter in it. She contributed, but her salary and company Mercedes were well above what the role was worth. When the parents sold, the new owner let her go almost immediately. She had built her life around an income she couldn't find anywhere else, and spent several hard years trying to rebuild.
Loving parents. Poor long-term outcome.
Can a gift with strings attached backfire?
Sometimes. Conditions can say more about the giver than the recipient.
One family I saw gave their daughter a lump sum on the condition it went into her superannuation. As her financial planner, that made for an interesting conversation.
She and her husband had kids at private secondary school, still had a mortgage, and neither planned to retire early. Retirement income wasn't really their problem. Cash flow right now was.
Mathematically, super may well have produced the best long-term wealth outcome. But reducing the mortgage, and the monthly repayment, could have made a far bigger difference to their lives at that point. She felt her parents' instructions were clear, so that's where it went.
What struck me was that this was a sensible couple with no history of frivolous spending. The condition wasn't really about the money. It was about not letting go.
That's the darker side of family gifts that rarely gets discussed: using money to stay relevant, or to keep a hand on the wheel, when the healthier thing may be to step back.
When should parents stop financially supporting an adult child?
There's no age at which this flips, and no rule that fits every family.
A more useful question may be what the support is doing. Help that gets someone established, like a deposit, a debt cleared, or a buffer through a hard patch, tends to build independence. Ongoing top-ups that fund a gap that never closes can do the opposite.
It's an incredibly difficult thing as a parent. You can see your child struggling, you have the means to help, and sometimes the kindest thing is to hold back.
We all know that part of growing up is falling on your face occasionally. We also value what we've worked for more than what fell into our lap.
Neither of those instincts is wrong. The work is in finding a way to help that doesn't undermine the second.
Questions worth asking before giving an early inheritance
Is our own retirement secure if we make this gift, including a long life and possible aged care costs?
Are we receiving, or likely to apply for, the Age Pension in the next five years?
Is the gift cash, or an asset that could trigger capital gains tax?
Would this help build independence, or replace it?
Are we attaching conditions, and if so, why?
How are we treating each of our children, and have we talked about it openly?
If those questions are hard to answer on your own, that's what we're here for. See how we help families plan financial support for their children, or book an appointment to work through the numbers.
Paul Benson is a Certified Financial Planner at Guidance Financial Services in Essendon, Melbourne, helping families work out how to support their children without putting their own retirement at risk. He hosts the Financial Autonomy podcast.
This article is for educational purposes only and does not take into account your individual circumstances. If you would like tailored advice, we can help you work through the numbers properly.
