When it comes to helping your children or grandchildren get a financial headstart in life there are so many options available however your generosity could create tax issues down the track. Here we explore this topic from a few different angles, depending on how you wish to help them.

Education

If you want to guarantee that money invested for a specific purpose in your child’s life is used for that intention, there are a number of ways to make sure this happens.

If you look around, there are plenty of investment products aimed squarely at helping parents save for education. They are often referred to as “Education Savings Plans” or similar. The savings plans can be set up to transfer to the child’s name at an age specified by you. Many of these funds charge minimal fees and the funds can be used for paying for books and uniforms, repaying HECS debts, and even to purchase musical instruments and lessons. 

Home ownership    

Due to the increasing difficulty faced by many young Australians in saving for their first home, assistance from family members is likely to become more common. A facility is available which enables parents to help with the purchase at no direct cost to themselves. The “family guarantee” loan allows parents, or another family member, to use their own home as security on their child’s mortgage. If you choose to act as a guarantor for your child’s mortgage, be aware of the implications. As guarantor, you are responsible for the entire loan if your child cannot meet repayments. 

Another option that places less risk on your assets is to lend your child money to make or increase their home deposit. Combining a parent loan with the first homeowner grant can make a substantial impact on the life of the mortgage. 

If you would prefer to give the gift of knowledge, make sure your offspring are aware of other opportunities such as First Home Buyer Savings Accounts whereby they can save their own deposit faster by receiving higher interest and paying the lower tax rate of 15% on those earnings.

Accessing tax breaks

Parents may be well aware of the value that spreading income across family members can have when it comes to tax time. But beware. The Australian Tax Office ensures money is not placed in children’s names purely to give Mum and Dad a tax break. For this reason, it can apply more aggressive tax rates for passive income invested in the name of a person under age 18.  So when setting up any investment in this way, make sure you check with your adviser first.

The key to giving your kids a leg-up is to have a clear objective before you start. With so many options available it can get confusing so be sure to ask your financial adviser for professional advice.

Call (02) 4926 2300 or email us. 

To discuss some of the opportunities parents have when it comes to helping their children financially please contact the team at Leenane Templeton. 

The post Giving your kids a headstart appeared first on Newcastle Financial Planners & Financial Advisors.

Many parents I speak to would love to help their kids buy their own home. (Usually, so they can have more privacy without a home filled with Gen Ys & Zs!) With housing costs normally out of reach for most young adults, staying home until they might be able to afford a deposit places added financial pressure on Mum & Dad.

We usually discuss different options available, including allocating the board the parents receive straight into an account so it builds up enough to gift back to their child helping them raise enough for the deposit. That’s okay if Mum & Dad don’t need that money to pay for the extra mouth/s to feed.

When we know that Mum & Dad have paid off their home and are just as excited about their children’s first home purchase as the “kids” themselves, we alert them to an alternative way to help them.

Many lenders offer a facility which enables parents to contribute to the purchase at no direct cost. Known under various names, a “family guarantee loan” enables parents, or another family member, to use their own home as security for up to 30% of the purchase price.

It not only ticks the boxes for Mum & Dad, but also for the young borrower, in particular:

• Your kids may be able to afford a more appropriate property that will grow in value over time.
• The loan can increase a current deposit or act as the full deposit.
• Your kids won’t have to pay costly mortgage insurance (usually required when borrowing greater than 80% of the purchase price).
• Your liability as the guarantor is limited to 30% of the purchase price and this is reduced as the mortgage is repaid.
• When sufficient equity has built up in the property, you can be removed from the loan.

But we always point out that there are certain risks involved in this. Such as:

• The lender will take out a mortgage over your home for the amount you are putting towards the loan.
• If the borrower (your child) defaults on their home loan repayments, the lender will sell the property to recoup the loan. If the sale price doesn’t cover the outstanding loan, you must make up the shortfall to the amount guaranteed. If you can’t meet that payment, the lender could take possession of your home to clear the debt. 

Like all things you have to look at this type of loan with as little emotion as possible – sometimes very hard when all you want to do is help out your kids, and have some peace and quiet at home.

Everyone has a different outlook but I suppose this is better than your kids paying high rent to pay off someone else’s property when they could be paying off their own.

Our financial planners are here to help with questions about guaranteeing your children a new home. 
Call (02) 4926 2300 or email us. 

To discuss your financial situation and how you may be able to help with guaranteeing your children a new home give the team at Leenane Templeton a call. 

The post Guaranteeing your children a new home appeared first on Newcastle Financial Planners & Financial Advisors.

“Isn’t estate planning all about looking after the assets of the wealthy when they die? What has estate planning got to do with being a single parent?”

Of course estate planning is about ensuring that there is an orderly transfer of assets between generations for the rich, but every person will leave something behind when they die, so estate planning is for everyone – rich or otherwise. The key aim of any estate plan is to ensure assets are transferred to support the right person(s), at the right time. And this is particularly relevant for single parents with young children. 

While the welfare of all children is a concern to parents, young children of single or widowed parents may be in a more vulnerable position for obvious reasons.

It’s not that difficult

Estate protection is not something the average single parent really wants to think about – or usually has time to do so – but there is good news. Making appropriate contingency plans need not be difficult or expensive – and the resulting peace of mind is worth the effort.

For such an important issue, it is best to seek appropriate professional advice. When seeking advice use the following questions as a starting point:

1. Is your will valid as a single parent? Is it appropriately expressed for the benefit of your children and up to date? Often people forget to update their will when personal circumstances change or they have no will at all. The results can be disastrous for your children.

2. Have you nominated an appropriate person(s) under the will to act as a guardian for your children? Is there a back-up option?

3. Who should be nominated as your personal legal representative (executor) of your will? The person selected should be someone who can competently and responsibly carry out your wishes. 

4. It may be wise to establish a testamentary trust under your will. That is, a protective trust that comes into existence upon death that provides financial support for your children until they complete their education.

5. Do you have enough life insurance so that the legal representative can clear any mortgage or other debts and provide for the living and education expenses of your children? Are the beneficiaries under your life policies appropriate?

6. Have your children (or perhaps the personal legal representative of your estate if a testamentary trust has been created and estate will be clear of debt) been included in any superannuation death benefit nomination?

7. Do all of your major assets have clear, current and unambiguous title? 

8. Should an enduring power of attorney be put in place nominating an appropriate person? This ensures that decisions can be made if you are incapable of looking after your financial affairs.

This list is not exhaustive nor will it be relevant to all situations, particularly where business ownership and other complicating factors come into play. However, it is a handy checklist for when you start talking to your adviser about these important issues.

Our financial planners are at hand to help with any questions you may have in relation to estate planning if you are a single parent. 
Call (02) 4926 2300 or email us. 

Estate planning for single parents needs to be taken seriously so let us help you! 

The post Estate planning for single parents appeared first on Newcastle Financial Planners & Financial Advisors.

You’ve saved hard to build your retirement nest egg. You should be able to spend the money on a well-earned relaxing lifestyle. But all this could be put at risk if your adult children don’t have their own financial affairs well managed, particularly adequate insurance protection. 

It’s human nature to assume that bad things only happen to others. Unfortunately this approach means that many people are unprepared financially for their future if sickness, accident or injury strikes. This often results in other family members having to bear the costs of supporting them.

For those close to or in retirement who are placed in this position, the financial impact can be devastating. 

Could this happen to you?

Let’s consider the example of Gary and Roslyn, both 61, who have one child, a 30-year-old daughter Janet. Gary and Roslyn are retired with an investment portfolio valued at $700,000, paying them an annual income of around $48,000. They also own their home, valued at $650,000.

Gary and Roslyn were enjoying trips away and spending time with their extended family members overseas until their lives dramatically changed when Janet was badly injured in a car accident. Janet was in hospital for almost three months, requiring another nine months of rehabilitation before she was able to return to work. 

Janet’s sick leave ran out after the first fortnight, and as she had no insurance cover in place, she had no income to pay the mortgage on her apartment ($2,500 a month) or other essential costs, including her mounting medical expenses.

As they didn’t want Janet to have to sell her apartment, Gary and Roslyn needed to draw on investment capital from their portfolio to pay Janet’s mortgage and meet her expenses for the year she was off work. This ultimately reduced Gary and Roslyn’s investment portfolio by almost $70,000 (or 10%). 

While Janet fortunately made a full recovery, the cost to Gary and Roslyn of supporting their daughter in her time of need meant a dramatic change in their long-term retirement prospects; ultimately their income was reduced by $7,000 per year for the rest of their lives (a 15% reduction), plus their travel plans were significantly affected. 

What can you do?

Believing that unfortunate events only happen to other people isn’t a responsible solution and is a terrible way to jeopardise your retirement. As part of looking after your own financial future, make sure that others who could affect your plans, such as family members, have also taken the right steps for their own lives. 

Talk openly to your adult children about their insurance cover and if they are putting themselves or you at risk, recommend they talk to a licensed adviser.

Call (02) 4926 2300 or email us to spreak with one of our specialist risk management advisors about protecting your entire family 

The post Protecting your entire family appeared first on Newcastle Financial Planners & Financial Advisors.

Being a parent working towards owning your home carries with it many dilemmas. One such quandary is funding education for your children.
 

While the best option will depend on your family’s specific circumstances, two important strategies to consider are:
 

1. Direct spare cash into the home loan and use redraws to fund education costs.
 

Benefits of this strategy:
• Reduces the total amount of interest paid on the home loan.
• After-tax investment return is equal to your home loan interest rate – risk free!
• Invest amounts that are income and capital gains tax-free.
• Easy access to your cash if required sooner than anticipated with the flexibility of an offset or redraw facility available with some home loan products.
 

Problems with this strategy:
• Offset account or redraw facilities are not available with every home loan.
• Financial institution may charge a fee to redraw payments in advance.
• Could achieve lower returns than alternative investments.
 

2. Investing in a managed fund dedicated to funding educational costs.
 

Benefits of this strategy:
• Can choose a mix of assets to suit timeframe and desired investment return.
• Many funds allow regular investing which takes advantage of dollar cost averaging.
 

Problems with this strategy:
• Income and capital gains tax are generally payable on managed fund investments.
• Investments made within a managed fund are subject to market fluctuations. In times when investment markets perform poorly, returns on the fund may be low or even negative, but this is often more than offset with high returns during the good years.
• Most funds charge entry, exit and/or administration fees.
 

Other important factors to consider:
 

Investment timeframe before children start school: Managed funds are usually a long-term investment (from five to seven years plus). If your timeframe is less, investing in a managed fund is not usually recommended due to the risk that you may receive less when you withdraw the funds than you originally invested.
 

Time before retirement: Not many people want to pay a home loan with their retirement income. Generally speaking, the further you are from retirement the more sense it makes to use the home loan to fund education costs.
 

Interest rates: How much interest are you paying on your home loan? If your rate is higher than the managed fund return, it usually makes more sense to focus on paying down your home loan and invest separately in a managed fund.
 

Investing wisely: High penalty tax rates exist for income earned by minors. This makes investing in the name of a child under 18 undesirable.
 

Our team of professionals and award winning financial planners are at hand to help with any questions you may have regarding this article.
Call on (02) 4926 2300 or email us.
 

Disclaimer.
 

Funding education can be confusing, so if you’re not sure what would work best for your family, talk to us.

The post Funding education: Managed funds vs Home loans appeared first on Newcastle Financial Planners & Financial Advisors.

Figures from the Australian Bureau of Statistics showed that one in five families is a blended or stepfamily.

Today, the issue of passing assets to beneficiaries on death is becoming increasingly risky. As the numbers of blended and stepfamilies continues to rise it is important to ensure a Will reflects an individual’s wishes.

Due to this, families should consider incorporating a Mutual Will into their estate planning. Mutual Wills can be an effective tool in an estate plan for couples where one or both partners have children from pre-existing relationships.

They can provide a degree of certainty that the gifts in the Will pass to the intended beneficiaries after the death of one party.

A Mutual Will is a Will that includes a binding contract between two parties stating that:
1. Each party will leave their property to the mutually agreed beneficiaries
2. During their lifetime neither party will revoke or change their Will without the consent of the other party
3. After the death of one party the surviving party will not alter or revoke their Will to change the mutually agreed beneficiaries

If the surviving partner makes a new Will and departs from the original agreement, the effect of the contract means that the courts will impose a constructive trust over the property inherited by the survivor.

The new year is on the horizon. It may be a good opportunity for individuals who have not considered or adequately planned what would happen in the event that they were to pass away to take action.

Contact Leenane Templeton Wealth Management if you wish to discuss this matter further.

The post Wills and blended families appeared first on Newcastle Financial Planners & Financial Advisors.

There are a lot of uncertainties involved in starting a family – from choosing the right nappy strategy through to working out the best approach for disciplining your little bundle of joy.

A new budget

• The amount of time you and your partner will be away from work. If you’re employed, your employer may grant you paid maternity and paternity leave, and many mothers are entitled to twelve months unpaid leave after having a baby. Consider how time off work will affect your family income and adjust your budget accordingly.
• Medical costs associated with childbirth. Your health insurer and medical practitioners will be able to indicate the extent of these costs.
• Any additional health insurance cover you may require.
• General costs associated with raising a child, such as clothing, nursery items, prams and so on.

Government Benefits

• Maternity Payment (previously the Baby Bonus and Maternity Allowance).
• The Family Tax Benefit – an ongoing payment to assist with child rearing costs and to assist single parent families.
• Child Care Benefit – an ongoing payment to assist with your child care costs.
• Maternity Immunisation Allowance – a oneoff payment for your child’s immunisation.
• Large Family Supplement – for families with three or more children.
• Multiple Birth Allowance – assistance for those having a multiple birth involving at least three children.
• Rent Assistance – ongoing rental assistance for lower income earning families.
• Health Care Cards – access to concessions on medical expenses.
• Double Orphan Pension – assistance in caring for a child who is an orphan.

Family assistance

Taxation advice

Deciding whether or not to go back to work

Your child’s financial future

More children

The post Starting A Family appeared first on Newcastle Financial Planners & Financial Advisors.