How to Help-Out Adult Children

September 24, 2013 

In a perfect world, your children should be successful, responsible, and financially independent. But in my world as a financial adviser, I get a lot of calls like:

"Jim, I need you to get me some money out of my account. My daughter is having a hard time making ends meet. Her airline pilot husband left her and my grandkids for another woman."

Or, "I need $10,000 so my son doesn't go to jail because he got a DUI. He doesn't have the money."

"Jim, send me $50,000 from my account because my son is starting a new business. He's tired of working for someone else. "

"I need to give my daughter $12,000 to catch her up with her mortgage so the bank won't foreclose on her house."

Yeah, I get it: You made it on your own. Your kids can, too. You're not an enabler.

Still, in some ways, there is a tax on being a parent. Together with chance, peer pressure and "your" parenting skills, your child is your blood. Children are often a great legacy or, for some parents, an embarrassing and costly failure.

So isn't it ironic that the children who stand to inherit everything, anyway, may struggle for years? Often it is in your financial and personal best interest to help your adult children out of a bind. Averting jail, foreclosure, or bankruptcy today may be cheaper than supporting them forever. Hopefully your kids are hardworking and de

serving.

Here are three strategies to help your adult children:

• Make Personal Loans: In your gut you know, despite your best hopes, there is a chance you're not getting your money back. Take comfort in knowing that if things go south, a properly structured note may get you a big tax break, a short-term capital loss on your tax return. Before advancing any money, there should be a written note or other proof of the debt. The document must have a specified market interest rate and an amortization schedule. Show proof that you made a demand for payment when payments were no longer being made as required. If you fail to document your loss, the IRS will consider funds advanced to be a nondeductible gift.

• Gift from the Grave: A $200,000 inheritance can be squandered in two years on hot cars, bad romantic partners, drugs, trips, and cool clothes. While not exciting, annuity payments of $1,200 a month, for example, may provide a lifetime of housing and groceries. So even if your child is incorrigible, no matter how bad he or she messes up, you are giving them a loving gift from the grave. Such annuities can be restricted for five, ten or 20 year payouts without your kids being able to touch the principle.

• Gifting: If you have the money, you can give tax-free gifts. If you don't, you can help with the babysitting. A husband and wife can each give a child $14,000 a year without making taxable gifts.

Remember, it's your own money. Helping a deserving child pay rent doesn't justify an equal gift to her more fortunate sibling. Loving is often equal. Gifting isn't.

When rescuing adult children, be prudent and not pound foolish. Don't end up in the poorhouse or on Medicaid.

Jim Germer, a Bradenton, CPA and a financial advisor with Cetera Financial Specialists LLC, can be reached at (941) 746-5600 or jim.germer@ceterafs.com.

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