Background
Parents who have accumulated reasonable wealth during their lifetime often intend to gift a sum to their children (for convenience ‘children’ also encompasses ‘grandchildren’).
However, good intentions often risk turning to dust because of predators. [The term predators include any party who may wish to lay claim to all or some of the capital.] So, before committing funds to the next generation, there is wisdom in understanding potential traps, and how to avoid them.
Gifting to children is one part of intergenerational wealth transfer. If you have built enough wealth to provide a comfortable lifestyle with something left over, you may wish to financially assist your adult children. This might be supporting them during tertiary studies, assisting securing a roof over their heads or helping them through a life transition.
But giving money isn’t always straightforward. Without the right structures and safeguards, well‑intended gifts can expose children (and your broader family wealth) to financial predators, failed relationships, or legal complications. Below, we discuss some aspects that require consideration to protect intergenerational wealth, and ensure your support truly benefits your children for the long term.
Why Intergenerational Transfer of Wealth Requires Protection
When a child receives a significant lump sum (e.g. a home deposit, shares, or a cash gift) those assets can unintentionally become entangled with other parties.
Risks include:
- Relationship breakdowns (where gifts may be treated as joint assets)
- Financial misuse or mismanagement
- Influence from partners or outside individuals
- Legal claims during bankruptcy or litigation
Protecting the gift protects the child. And protecting the child protects the family’s long‑term wealth. In addition, there can be Tax implications that reduce the value of the gift or give rise to a liability for the person providing the gift that may also require address.
What to Consider for Succession Planning
There is one starting point: seek financial advice.
There is a large range of wealth strategies available depending on the situation, for example the intentions of the donor; the asset(s) being considered to gift; taxation issues; and the age and circumstances of the children.
Options worthy of consideration could include the use of loan arrangements, direct ownership or beneficial ownership (i.e. via trusts), inter vivos or testamentary distributions. Each potential solution has its own taxation implications and control issues to work through. An experienced wealth adviser can structure tailored solutions for the unique circumstances of the individuals.
The Bottom Line
Gifting is an important part of intergenerational wealth transfer. When done well, it strengthens families, supports opportunities, and builds long‑term security. When done poorly, it can expose wealth to avoidable risks.
The right structures protect your children today while preserving your family’s wealth for tomorrow. If you’d like help structuring gifts or planning long‑term wealth transfers, First Samuel’s inheritance planning experts can assist you.
