Maybe, possibly not – but there are three big categories of things to think about: estate issues, tax consequences and the warm, squishy, family stuff. Kids, you know.
Rule number one is to get some objective legal advice. There are plenty of people who will want to sell you a scheme, and you may be blind to your nearest and dearest blind spots.
This is usually where the idea starts. Who wouldn’t want to give a child or grandchild a good start in life? To be clear, it is legal to buy a property in the name of a minor (someone under the age of 18). The Title Deed will simply note that the owner is a minor. It is a simple matter to change the deed when the youngster is of age.
If it’s a gift made during the lifetime of the giver, then the questions that may arise are not estate law questions.
But there are questions. The Department of Human Services describes giving away assets or transferring them for less than their market value as “gifting”. This can include selling or transferring property for less than market value. Gifting real property may affect an Age Pension or other benefits.
Kids and Grandkids
Until the child or grandchild reaches the age of 18, a property that has been gifted to them cannot be sold, mortgaged or dealt with in any way without a court’s approval. These proceedings are expensive and unlikely to succeed.
Market conditions may change. The financial circumstances of parents or grandparents may change. Grandchildren, including the number of them, may change. The child, who was an angel at 7, may demonstrate questionable judgment at 18. Gifting real property to a young child necessarily deprives the giver of flexibility in choices.
The three issues, depending on how you choose to approach this puzzle, might be stamp duty, capital gains tax and Goods and Services Tax (GST). Tax issues, along with estate considerations and the perils inherent when minors meet assets must be part of the calculation.
For example, if the child takes ownership and full control of the property at the age of 21, 20 years after it was placed in trust for her benefit, the stamp duty will be calculated on the value of the property when she is 21. The capital gains tax will be calculated as of the same date. Either of these obligations could make a well-intended gift far less valuable.
Would it be better to transfer the property to a trust, over which you are the trustee, thus maintaining control? What about appointing a corporate trustee at the child’s majority? Would it be better to delay the child’s ability to control the real property until age 21?
There are a variety of possible solutions. Which is appropriate will depend on the relative weight of all of the personal factors. No one solution is right for every situation.
If you have questions about transferring property to a young child as a way of sidestepping estate tax issues, call us at 1800 770 780. The attorneys at Owen Hodge Lawyers look forward to helping you evaluate all of the complicated factors that you should consider to arrive at the best possible solution.