Being a co-supervisior of a branch proposed for Master thesis from my PhD thesis
I'd consider that an excellent opportunity to get further into research, and gaining a pair of hands in your job (even more, as the advisor will also chip in). As long as everybody is happy with this, particularly the master's student (who clearly is on board, as you were approached in the first place), I don't see any possible ethical problems.

But you'd have to check carefully that this doesn't run against any local regulations.