If you’re paying for the grandchildren’s school fees you’re not alone. According to Australian Bureau of Statistics data, the cost of education rose by 44 percent in the six years leading up to 2016. These rising educational costs combined with COVID-19 related interruptions to many families’ incomes, means more and more grandparents are helping out with private school fees or private coaching fees.
When it comes to providing financial assistance to family, it’s critical everyone to be on the same page. This sort of thing is fertile ground for sibling and parent-child disputes.
Is your assistance a gift or a loan?
Before offering to pay your grandchildren’s school fees, decide whether you are making a gift or a loan.
If the money doesn’t have to be repaid, it’s a gift. The exception is a conditional gift. If you are making the gift of money on the condition that it be used to pay school fees, we can help you to put that in writing in a Deed of Conditional Gift. If the money is used for something else (for example, a holiday or new car) you can then demand that the money be given back.
Even if the gift is not conditional, or you pay the school directly, we still recommend a simple (but formal) Deed of Gift. From prep through to year 12, the cost of private education ends up at over half a million dollars. If you are not assisting all your family members to the same extent, there may be issues later, after your death, as to whether the child who has benefitted from your financial assistance should repay your estate. The person you gave the money will claim that the financial assistance was a gift, but their siblings might argue it was a loan, and therefore the money must be repaid to your estate. Documenting the arrangement will avoid these damaging disputes.
If the school fees have to be repaid, it’s a loan. Putting in place a formal loan agreement is a must. As we noted above, private schooling is expensive and grandparents who are dipping into their superannuation to contribute to their grandchildren’s education costs may be putting themselves under financial hardship in the future if the money is not repaid. Having a loan in place does not necessarily mean you must require your child to repay the funds. You can always forgive all or part of the loan later. However, if your financial circumstances change in the future, and you need access to some more cash to get by, then a loan leaves you the option of being able to require a payback to fund your lifestyle, including health costs or accommodation. Having a loan in place is a cheap form of insurance against what may happen in the future.
Lending to family members has to be done carefully so read this article and avoid the pitfalls.
Using an ‘education trust’ in your Will
You may not yet have grandchildren or school age grandchildren, but you would still like to ensure that their schooling needs are met. You can do this through your Will. You can set up a ‘education fund’ that will fund all or part of the cost of your grandchildren’s education on whatever terms you see fit. These funds have some great tax efficiencies and give you some control over how your grandchildren are looked after when you’re gone. For more information, read our article explaining how education testamentary trusts work.
How we can help
We know you want your financial support to be a positive thing for your family. A mismatch of expectations will only cause problems. Both you and the child you are benefitting have a strong incentive to make sure you clarify what is occurring. If it is a gift, then your child will want that documented to avoid having to pay it back when you are gone. If it is a loan, then your child will need to understand that you may need the funds back in the future. Call us on 1300 654 590 for a confidential chat.