Gifting or lending?

As families look to create lasting financial strength across generations, the question of how to structure wealth transfers, whether gifts or a loan, can shape not just individual outcomes, but the collective wellbeing of the family. Whether you’re helping a grandchild with a home deposit, assisting a sibling through a difficult time, or supporting a younger relative’s education, early wealth transfer can be deeply meaningful and impactful. It’s a way to share not just financial resources, but also opportunity, stability, and care.

However, generosity alone isn’t always enough. Without thoughtful planning, even the best intentions can lead to misunderstandings, financial strain, or unintended consequences. Structuring support with clarity helps protect your wellbeing and preserve family harmony.

Gifting: a legacy of opportunity

Gifting money can be a meaningful way to unlock opportunity. It’s straightforward, doesn’t involve repayment, and can make a real difference during major life milestones like buying a home, starting a business, or covering education costs. It is genuinely rewarding and it’s a strategic choice to invest in your family’s future.

However, it’s important to understand the implications. In Australia, Centrelink rules limit how much you can gift without affecting your entitlements. Gifts exceeding $10,000 per financial year, or $30,000 over five years, may be treated as deprived assets, potentially reducing your pension or other benefits for up to five years.

There’s also the question of asset protection. Once a gift is made, it’s no longer yours. If the recipient experiences a relationship breakdown or legal dispute, the gifted funds may be considered part of their assets.

To avoid misunderstandings, it’s wise to document the gift clearly, even if it’s within the family. A simple letter outlining the intention and amount can help prevent confusion later and ensure your generosity is respected.

Lending: empowerment with safeguards

An alternative to gifting is providing a private loan. This approach offers greater control and legal protection, particularly when significant amounts are involved. It’s a way to help, while still safeguarding your own financial position.

A formal loan agreement sets out repayment terms and reinforces the seriousness of the arrangement. Courts generally recognise documented loans as liabilities, which can be crucial if disputes arise or if a recipient’s relationship ends. From a Centrelink perspective, loans are treated as assets and subject to deeming rules, but they don’t trigger gifting penalties if properly documented.

For example, a couple in their 60s recently wanted to support their two grandchildren with $30,000 each to help cover university tuition and living expenses. Before offering the funds, they sought advice on affordability, fairness, and whether to structure the support as a gift or a loan. After careful consideration, they chose to formalise the arrangement as a loan. This gave their grandchildren the financial stability they needed during their studies, while also protecting the couple’s interests in case of future complications. It was a decision rooted in care but guided by foresight.

Planning for generational strength

Supporting loved ones financially is about creating opportunity, reinforcing values, and building a stronger family foundation. With thoughtful planning, you can ensure your contributions support long-term wellbeing, not just short-term needs.

Speaking with one of our qualified financial advisers can help you navigate the rules, structure your contributions effectively, and align your decisions with your family’s shared goals.