Could being the Bank of Mum and Dad come back to bite you later?

On the Northern Beaches, there’s nothing nicer than helping your kids get a plot of land. But the Bank of Mum and Dad may think their own property journey is over when it could have more to run. Having cash on hand might be more important than you think.

The Property Journey Isn’t Over

Consider these potential housing changes: downsizing, moving to a retirement village, spending time in aged care, and, finally, the last move. Each of these steps may require liquid cash, and not having it could really bite you in the arse.

Downsizing

Downsizing rarely goes perfectly. If you’re doing it to free up cash, have you considered all the numbers? I’ve seen pensions lost, moving and transaction costs underestimated, and furniture that won’t fit. I’ve helped people avoid unnecessary downsizing and manage their timing using the Home Equity Access Scheme, ensuring they get their full Age Pension, and making sure they have the numbers right.

Moving to a Retirement Village

There are more than 4,000 people in retirement villages across the Northern Beaches LGA, with 30 villages run by 20 different providers. Each has different contract terms, and the major players, Keyton and Aveo, own a third of those units, offering various ways to pay for the same thing. 

Planning mistakes can lead to disaster. For example, aged care costs can spiral, with interest rates as high as 8.36% if you can’t pay for a bed upfront. One village in the area has an average wait time of 369 days to sell a unit, which could leave you waiting a long time for your money.

Aged Care Bed

A common scenario in aged care involves Mum and Dad, who have never received an Age Pension, suddenly becoming eligible for significant help. Imagine a home-owning couple with $1.2 million in super and savings who need to find a bed for Dad, and the Refundable Accommodation Deposit (RAD) is $800k. Paying the RAD can drop their assessable assets, making them eligible for nearly $60k in Age Pension – if they get the paperwork done quickly. But if they’d given $500k to one of the kids and it’s tied up in property, they’ll struggle to pay the RAD and miss out on maximizing the pension.

Everything Else

Don’t forget that gifted assets are assessable too. You can’t gift your way into an Age Pension – at least not for five years. By all means, help the kids, but just like in those safety videos before a flight, look after yourself first.