As parents we want to help our kids, but these are things you should consider.

When our kids ask for help, it is sometimes hard to say no. It is important that you know you can afford to help.

The desire to help our kids is lifelong. However, lending or giving money to your adult children can cause problems. Especially if it is not clear whether the money is a gift or a loan

Many adult children need help with their down payment for a home. This makes a lot of sense because we want our children to be financially secure. The problem arises when parents provide money, but need it back later. Perhaps they need to fund their retirement, face unexpected health costs, or are separating. Regardless of the reason, the decision to help our kids may create unanticipated consequence

Gift Letters

When parents provide money for a down payment, the Banks often require a Gift Letter. This is a legally binding declaration that the money is not a loan and there is no expectation of repayment. If you provide a Gift Letter, you have no legal way to get the money back. In fact, if you later claim that money was not a real gift and you just gave the Gift Letter so your child could get a mortgage, you may be admitting to fraud.

The rule of thumb is that a Gift Letter is final, and you cannot get your money back. However, it is not uncommon for children to “repay” these gifts, but this is a moral not a legal obligation.

Loans

If you are loaning money to your kids, you should have a written agreement proving this to be a loan. If your child and their spouse separate, having evidence that the money was a loan will be important when it comes to property division. It may be your only way to get your money back. Sometimes, when we try to help our kids, we support unrealistic dreams. Remember two out of three new businesses fail. Your kids have years to recover from a financial setback, you do not.

Sometimes parents lend huge sums of money to their children. Most often the money is used for home renovations or business start-ups. If you are lending money to your child for home renovations, ask for a second mortgage to be registered on the family home. This will safeguard your investment. If the money is for a business, ask what it is for and what sort of security is available. You should have legal advice for these sorts of large loans.

Just remember, a loan needs to be provable.

Early Inheritance

If you are giving money as early inheritance, it is important to document the gift.  More importantly, if your child is married, it should be clear the gift was only to your child and not to the couple.  Inheritance is not family property in the case of a separation, so if you document things properly, the money will not be divided between the separating spouses. 

Before giving money to your adult children, make sure that you can afford it. If you do not have a financial planner, get some advice from one who is a certified professional. It can be difficult if you have to say no to your child, but they will have a lot more opportunities in the future and you need to safeguard your financial security.