Years ago, it was typical for recent college grads to return home to live with their parents for a few years until they were able to support themselves and live financially independent lives. Many of the financial plans we developed over the years incorporated goals to financially assist clients’ children to some extent beyond their college years. We work with clients to determine the amount of financial support they can give, and for how long without sacrificing their own financial future.
Today, we find that as adult children are approaching their thirties they are still relying on their parents for financial support. Over the past few years, the current economic slump coupled with high unemployment is not only continuing to delay our college grads from getting a head start in the job market, but also forcing some young families to reach out to their parents once again for financial support.
Not many families can withstand a long-term drain on assets that already took a hit during the market meltdown a few years ago, so it is important to be able to help our clients identify strategies to help their children in a way that won’t cause damage to a client’s portfolio or their financial plan, such as low-interest rate loans, or outright gifts equalized in their estate plan.
Low-Interest Rate Loans—Parents can extend low-interest rate loans to their children. If the child later encounters a problem making the full payments, the parents can make concessions that a major bank wouldn’t. The parents can effectively use their annual gift exclusion to forgive some of the loan payments.
Outright Gifts Equalized in Your Estate Plan—You may have one child that needs your financial support today while the other doesn’t but you are concerned with keeping everything fair. To avoid making significant withdrawals in your portfolio today you can meet with your attorney to incorporate language in your estate plan to ensure gifts are equalized when the future disposition of assets is made. This also helps to demonstrate to your children that you aren’t a bank, and you don’t have unlimited resources.
For many of our clients, their desire to help their adult children may result in them working longer, or transferring their wealth sooner. Every family has limits to what they can do financially and its important to take a look at the long-term consequences of any financial help.