The $100k Trap When Passing Your Property to Your Kids (6 ways to solve it) EP118
For many families in Australia, owning a property is not the ultimate goal; instead, it is passing it on to the children. But when it actually comes time to pass that property on, a lot of parents and children suddenly realise they're completely lost. Transferring a home isn't as simple as just changing the name on the title. From gifting to inheritance, from using a trust to transferring the loan, from stamp duty to capital gains tax — every method has its own tax implications and legal risks. Get it wrong, and you could easily end up paying well over a hundred thousand dollars in unnecessary tax and fees. So today, we’re going to lay everything out clearly in one go: in Australia, what are the different ways to pass a property to your children, and what are the pros and cons of each? I put together the professional suggestions from my team, including lawyers, accountants, financial planners and mortgage strategists — and spent more than 10 hours organising all the details so that I can share the most important insights with you in the simplest way.
1. Helping Your Child Buy
The first way is to simply spend the money to buy a property for your child and put it in their name. In that case, it’s no longer really about “inheritance”. With property prices in Australia so high now, if parents don’t help, it’s almost impossible for kids to buy a place on their own just by working hard.
You can give your child a lump sum of cash to solve the deposit problem, and let them handle the mortgage repayments. For a child with no real sense of wealth, this helps them build a sense of responsibility and pushes them to work harder.
Some parents choose to pay the deposit and also help repay part of the loan to reduce the financial pressure on the child. If the child doesn’t have enough borrowing capacity, the parents can use their own borrowing power to guarantee the loan. But if the child can’t meet the repayments, the parents will have to step in and pay.
If you're worried that your child’s relationship with their partner will change one day, then when you’re buying the property, you shouldn’t just hand over cash as a gift. Instead, treat that money as a loan. You can ask a lawyer to draft a loan agreement, where the parents lend money to the child at an agreed interest rate, and the child pays the interest back to you.
If your child’s relationship with their partner changes in the future, the principal you put into helping buy the property is protected, and at the same time, part of your child and their partner’s wealth can flow back to you over time in the form of interest payments. You achieve two goals with one move.
2. Joint Ownership
The second way is joint ownership. The mindset is, “Let’s just put their name on first; the property will be theirs in the end anyway.” But in reality, this carries some very serious hidden risks.
If you hold the property as “joint tenants”, when one party passes away, the property automatically transfers to the other party. That sounds pretty good, right? But the problem is, once your child’s name appears on the title, in legal terms, they are a co-owner of the property. What does that mean? It means your child has full rights over the property, and also full responsibilities.
If your child later divorces, their former spouse may make a claim over this property. Even if you see this home as the parents’ asset, the spouse may still end up with a share. Under Australian family law, marital assets are protected, and the scope is very broad. If the property is jointly owned, the spouse may argue that they’ve made a “contribution” and use that as a basis to split the asset.
If your child runs into debt and is sued, creditors may also target this property. If the property is in your child’s name, creditors can apply to seize it to repay the debt. That’s a huge risk to the family’s assets.
If, unfortunately, your child passes away early, this property may become the asset of their spouse, rather than automatically returning to the parents. Under the rules of joint tenancy, it does transfer automatically. But if your child has a will naming other beneficiaries, or if a spouse applies to have the estate divided, things can become very complicated. So even though adding your child’s name sounds simple and convenient, from a risk-management point of view, the exposure is too big.
If you really want to do it this way, please consult a lawyer and make sure you fully understand the risks involved. The best approach is to prepare a written document explaining why the child’s name is being added and whether the child agrees to take on the corresponding responsibilities. That can reduce the chance of disputes in the future.
3. Family Trust
The third way to help your child buy a property is to set up a family trust. In Australia, many families use this structure to pass on wealth, especially when the asset base is large or the structure is more complex.
The logic of a family trust works like this: The parents don’t hold the property in their own names. Instead, the property is held through a trust structure. A trust has:
a trustee (usually the parents or the children, it could be a company),
a legal document called a trust deed,
and clearly defined beneficiaries (usually the children).
The trustee’s responsibility is to manage and distribute the trust assets according to the trust deed. The beneficiaries’ rights are to receive income or assets distributed from the trust. So, what are the advantages?
First, from a tax-efficiency point of view, a trust structure lets you distribute income and assets in a flexible way. For example, if the property generates rental income, that income can be distributed to different beneficiaries, which means you may be able to use different tax brackets. If you have two children, and one earns a high income while the other earns less, you can allocate more of the rental income to the child on the lower income. That can reduce the overall tax bill for the family. This is one of the key benefits of using a trust.
Second, from an asset-protection point of view, if assets are held in the name of the trust instead of in your personal name, then if a beneficiary faces legal risks — for example, being sued or chased by creditors — the trust assets are generally harder to go after. That’s because trust assets belong to the trust itself, not to the beneficiary. For families that need to protect assets, this is a very important consideration.
Third, from an inheritance point of view, assets held in a trust don’t need to go through the normal estate-administration process. When the trustee needs to be changed — for example, if the original trustee passes away — you simply appoint a new trustee in line with the rules set out in the trust deed. The assets can then be distributed directly to the beneficiaries according to the trust deed, without going through the courts and without a long execution process. This doesn’t trigger federal-level capital gains tax, but depending on which state or territory you’re in, it may trigger full stamp duty. If the trustee is a company, and you simply change the directors’ roles from the parents to the children, usually, there is no capital gains tax and no stamp duty triggered, and you can still achieve a transfer of control. This method is much quicker and can save a lot of money.
Of course, this approach also comes with costs and complexity. The most complete and proper way to set up a family trust is to consult both an accountant and a lawyer, then establish the trust. The total setup cost is usually between 2,000 and 5,000 dollars, depending on how complex the structure is.
If you already have a property in your personal name and you want to transfer it into the trust, you’ll have to pay stamp duty on that transfer. On top of that, the trust needs to lodge a trust tax return every year, which increases your accounting costs. Compared with a personal tax return, a trust tax return is more expensive.
So, is a family trust worth setting up? That depends on your situation. If you have a larger amount of assets, if you want more complex distribution arrangements, if you have multiple children and want to treat them differently in your planning, or if you want stronger asset protection, then it’s probably worth it. But if you have only one property and are transferring it to a single child, in many cases, setting up a trust may not be cost-effective.
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4.Gifting
When many people say they want to “transfer” the house to their children, what they actually mean is gifting. In other words, you change the name on the title to your child’s name, but your child doesn’t pay you.
If you want to gift a property, you need a legal document called a Deed of Gift. Both the parents and the children have to sign it, and usually you also need a witness — a justice of the peace or a lawyer — to make sure the document is legally valid. It all sounds straightforward, but here’s the problem: Yes, Australia doesn’t have a separate “gift tax”, but gifting a property is definitely not free.
First, the government will calculate stamp duty based on the market value of the property. That’s right — even if you don’t take a single dollar from your child, the government still wants stamp duty on the full market value.
For example, If the parents gift a 1.5 million dollar property in Sydney to their child, the child has to pay stamp duty based on that 1.5 million market value. Using New South Wales stamp duty rates for 2025, that comes to roughly 60,000 to 70,000 dollars. Is there any way to avoid this?
We need to clear up a very common misunderstanding. Some people say, “NSW has family transfer exemptions.” But here’s the important reminder:
A direct gift of a property from parents to children will usually attract full stamp duty. The exemptions only apply in very specific situations — for example, the transfer of a deceased estate, certain transfers of a principal place of residence, or agricultural land. Parents gifting a property to their children, in most cases, you simply can’t escape paying stamp duty. This whole process needs a lawyer to handle it, and legal fees alone can be anywhere from 1,000 to 2,000 dollars.
Then there’s another key issue: capital gains tax. This is the part that a lot of people completely overlook. If the property has gone up in value, then at the moment the parents gift it away, in the eyes of the tax office, it’s treated as if they “sold” it.
For example, say the parents bought the property 20 years ago for 500,000 dollars, and it’s now worth 1.5 million. That 1 million gain is subject to capital gains tax at the time of the gift. So how is that calculated?
In Australia, capital gains tax is calculated using your marginal tax rate.
If your income is above 190,000 dollars a year, your marginal tax rate is 45%. On a 1 million dollar gain, at a 45% tax rate, that’s 450,000 dollars of capital gains tax. Sounds pretty scary, right? This is exactly why many parents hesitate when they’re thinking about gifting a property to their children.
However, if the property is the parents’ principal place of residence — their own home — then it’s completely exempt from capital gains tax.
This is the biggest tax concession in the Australian tax system. As long as the property has always been your home, no matter how much it has gone up in value, gifting it does not trigger CGT at all.
But what if it’s an investment property? Then you can’t escape. If an investment property goes from $500,000 to $1.5 million and you gift it to your child, the parents will be up for that $450,000 in capital gains tax. So the cost of gifting can be extremely high.
5.Using A Will
When it comes to passing property on in Australia, the most common method actually isn’t gifting. It’s inheritance through a will. Why do so many people choose this way? Because, from a tax point of view, inheritance is usually the lowest-cost option.
Australia completely abolished inheritance tax back in 1979. It was the first developed country to remove inheritance tax. For families with a reasonable amount of assets, this is a huge advantage. But that doesn’t mean inheritance is completely tax-free.
If the children inherit their parents’ main residence — the home their parents lived in before passing away — then in most cases, if the children sell that property within two years, they can enjoy a full capital gains tax exemption. This is a very important concession. For example, if a property went from 500,000 to 1.5 million, and the children sell it within two years of inheriting it, that 1 million gain is completely tax-free. By contrast, if the parents had gifted or sold the property, they might have had to pay 450,000 dollars in capital gains tax. From this angle, inheritance is much cheaper.
But what if the property is sold more than two years later? Or what if it was an investment property from the beginning? In that case, capital gains tax has to be calculated based on the market value and the cost base at the time of inheritance. At that point, the overall tax cost may no longer be that low.
If the transfer happens under a valid will, changing the name on the title and completing the property transfer usually doesn’t attract stamp duty. On this point, inheritance is clearly better than gifting, and it can save tens of thousands in duty.
But there’s a condition: you need a legal, valid will. What if there is no will? Then the estate has to follow the inheritance laws of each state. The process becomes much more complicated, more expensive, and the outcome might not match what you had in mind at all.
In New South Wales, for example, inherited estates follow a fixed set of rules: the spouse receives a certain share first, and then the children.
But this whole process has to go through the courts, involves lawyers, and can easily take several months — and cost a lot of money.
There’s also a very practical issue: inheritance usually involves the work of the executor of the estate. They have to value the assets, pay off debts, and distribute the remaining estate. This whole process can take several months, sometimes more than a year. During this period, the property may face extra tax and management costs. For example, if there’s still a mortgage on the property, the executor has to deal with the loan. If the property is rented out during the administration of the estate, the rental income may need to be reported separately.
While inheritance is usually cheaper from a tax perspective, the time and process costs can be quite high.
6.Testamentary Trust
Now we come to the ultimate inheritance method, and one of the most widely used tools in wealth planning: the testamentary trust. This type of trust is created through your will. After the parents pass away, it’s automatically activated and comes into effect under the terms of the will.
In many ways, it works similarly to a family trust, but there are some key differences. Let’s compare two situations.
While the parents are still alive, they set up a family trust, appoint a corporate trustee, the parents are the directors of that company, the family trust buys the property, and then at an appropriate time, they change the director roles over to the children.
In the will, the parents write clear clauses stating that, after they pass away, the properties held in the parents’ personal names are to be automatically transferred into a testamentary trust, with the trustee and the beneficiaries already nominated.
The first difference is timing. A family trust is established while the parents are alive, and the change of directors also happens while they’re still around. A testamentary trust, on the other hand, is only set up and completed after the parents pass away, automatically under the will.
Second, when the parents buy a property through a family trust, they still pay stamp duty as normal at the time of purchase. But there is no stamp duty for the testamentary trust.
Third, when they change directors of the company that acts as the trustee of the family trust, that change does not trigger capital gains tax or stamp duty. In the same way, when a testamentary trust is automatically created and the property is moved from the parents’ personal names into the testamentary trust, that transfer does not involve those two taxes either.
Fourth, a family trust is a bit more expensive to set up, and it needs ongoing work each year — annual reviews and tax returns.
Fifth, a family trust provides asset protection continuously, from the moment it’s established. A testamentary trust only starts offering that protection after the parents have passed away.
So, out of all the methods we’ve talked about, my personal favourite is still the family trust. Its flexibility and level of protection are both excellent. The only real drawback is the cost of setting it up and maintaining it. If that cost isn’t a big issue for you, I honestly struggle to find a strong reason to use other methods to pass on property. Of course, everyone’s situation is different. Among these six methods, there might be one that suits you better.
One last thing I want to add: a family trust is essentially just a bundle of rules and clauses. In theory, change one clause and you’ve created a different trust structure. That’s one of the reasons many bank staff can’t fully understand trusts when they’re assessing loan applications.
At the same time, the rules around trusts are tied to each state and territory, and there are big differences between them. For example, in South Australia, a family trust can exist forever; in Queensland, the maximum term is 125 years; in the other states and territories, it’s generally limited to 80 years.
And that’s just one example — there are plenty of other differences.
So when you’re setting up a family trust, the most proper approach is to first consult a financial planner, get a clear strategy, and then go to an accountant to implement that strategy.
If you go straight to an accountant and ask them to set up a family trust, yes, they can do it. But in most cases, they’ll just use a standard template, with very little fine-tuning, so you’ll need to understand a lot of it yourself.
All of this planning and these services are what we’ve reserved for our paid VISION members. They each have access to their own dedicated financial planner and accountant. Please come to our website and get to know what our VISION membership service has to offer.
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