My mother has just inherited several million dollars and to her credit she has finally retired at age 72 and bought herself a new house. Mum deserves it!
I've just turned 40 and am going to sell an IP which after costs and CGT will pay off my PPR.
I also have 5 other IPs with an outstanding debt of $600k. LVR is about 35%.
Mum wants to invest her money but wants some 'safe' returns, ie, not risky. She said that rather than put some of the cash into a fixed 5yr term deposit at the bank, she'd rather loan me the $600k and in return I'd pay her 5%pa paid weekly into her super account. Loan is essentially interest only.
I can obviously get a cheaper interest only loan via one of the big 4 but would rather keep the money in the family. The loan would be drawn up via the solicitor with terms and conditions so that I can claim the interest paid and Mum will have to declare interest at tax time her end.
Are there any problems with this arrangement both from a legal and tax point?
Make sure the loan is secured or mum could lose her money. You also have to consider capacity issues because of her age and be careful of 'elder abuse' allegations – possibly by other family members. You and her should have separate solicitors and she should instruct her solicitor directly without your involvment.
She should make sure her will is up to date and that the money is appropriately left to the persons she wants to give it to. A testamentary trust would be worth considering – both you and mum (separately of course).
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Cheers for that, but it only part answered my question.
So assuming this is then legal and a suitable arrangement for tax purposes……
There will be no capacity issues servicing the debt at my end. Properties are so positively geared its ridiculous.
The properties are security. No chance of Mum losing her money whatsoever. Both our wills are up to date as well.
I think it's just a matter of Mum and I nutting out the details of the loan so we are both happy and protected. I think Mum is looking at a similar arrangement with my sister so can't see any elder abuse issues. I'm paying her more interest than the bank in a term deposit.
By capacity, I meant mental capacity.
There are plenty of ways your mum could lose her money, so to protect her and yourself you each should see separate lawyers and nut this out. It is doable but should be done properly as there are so many issues involved.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks again. Mum and I've talked at length about both of our health issues, my work, aged care and so on and it will all form part of the agreement. I've got a great relationship with my family.
Appreciate your time.
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