They birthed you, raised you, provided for you … and now they need help. Financial help.
But lending money to your parents can be a burden — financially and emotionally. What are the rules? Do you feel indebted to them just because they’re your parents?
What if they’re a bit unstable? Take Meghan Markle's father, Thomas Markle, who is rumored to have asked his daughter to help him financially just weeks before her wedding to Prince Harry. Reportedly, she refused.
Throwing money problems into an already tense relationship with parents can break the bond for good.
The Real Housewives of Potomac's Ashley Darby learned how complicated things can get when financially supporting her mother caused tension in her marriage. Her husband Michael had agreed to help her mother on one condition — that she break up with her “toxic” boyfriend, who according to Ashley, “zaps the life” out of her.
Problems began when mom never broke up with her guy. However, Ashley continues to support her.
We get it. It’s hard to turn your mom or dad down, especially if they are struggling, but how much do you (literally) owe them? Can you ever say no?
New York City-based financial advisor Douglas Boneparth, CFP and founder of Bone Fide Wealth tells Personal Space that lending money to your parents, or any family member, comes down to how good or bad your relationship is. In most cases, it’s not really about the money.
“These situations work out when you have a solid relationship to begin with,” Boneparth says. “It almost has nothing to do with the dollars themselves. It has to do with the health of the relationship between the parent and child. I think you need to really be aware of the type of relationship that you have. It is very easy and somewhat natural to be emotional when it comes to family, the people you love. When it comes to managing money, emotions are the exact thing you want to leave out.”
So your parents ask you for a loan or help with the mortgage or medical bills or just don’t have enough retirement. You love them to pieces. Boneparth says you need to consider two important things — your emotional state and your financial state.
“The danger is, you’re bringing together money and one of the most emotional relationships you’ll ever have. You really need to be aware of what your emotional competency is before lending money to family members...The financial piece of this is, how many times are the loans being made? Are they gifts? And there are right and wrong ways to give or lend money.”
Boneparth says that because it’s family, most people make a verbal agreement to either be paid back or not, how much, and when. Instead, you should treat it like a normal business transaction.
“Follow IRS guidelines, there are rates for short, medium, and long-term loans…actual interest rates, it’s a real loan. Typically, the interest is taxed, it’s income. That’s the official way to do it and that absolutely requires a loan document, which makes it legally binding. And there’s recourse.”
Family can sue family for repayment plus interest, and no one wants that.
“If you give [parents] money, there’s tax rules around gifts as well,” he says. “Often we see loans given between family members that are just on good faith, it’s not supposed to work like that. You have no documentation if things go south.”
According to a 2013 Merrill Lynch Retirement study, just 16 percent of individuals 50 and older had provided financial support to parents or in-laws in the past five years, but the amount was significant at an average of $14,900.
When you can turn a parent down:
Yes, it’s heartbreaking, but sometimes necessary. One, consider what they are using the money for. If it’s to gallivant around the world and you’re wealthy, go right ahead. But, if you’re trying to secure your own future, think hard about giving up the dough. Is it a one-time loan, or will this be a thing going forward? Do you have siblings who can pitch in?
“If your own financial goals are at risk, you should think long and hard about loaning them money,” Boneparth says. “It’s subjective though…Look what love can do, some people are going to make that sacrifice even if they don’t have much money themselves. You might put family first even if you’re not financially empowered, if you are in control and you have financial well-being then you should be able to make a decision based on your best interest financially.”
Be prepared to go through the emotional rollercoaster of saying no, Boneparth adds.
“Knowing that you’re making a decision that may be the opposite from your emotional standpoint, you may think ‘I’m a bad kid, I can’t help them out.’ You need to have a ton of emotional and financial maturity to handle it. I’ve seen people lend money and they didn’t get it back. At the very least, they never lend again, at the most, a relationship is ruined.”
Even with your parents.
Family counselor Laura Young, based in New York City, says you must be open and honest from the start about what can happen if the money’s not paid back. (Not, like, in a mafia way, more in a “this could affect our relationship” way.)
“It depends on the family dynamic,” Young says. “If an adult child has a lot of money and they’d like to be able to give their parents money and not be paid back, that’s OK. Otherwise, what, when, and how can they pay it back should be discussed. If they have a gambling problem, the child may wonder 'why am I doing it if I’m likely to never get paid back?' There’s such a range of things parents would ask for money for, are the parents sick and on disability? Is a child gonna lose their own home? The financial intelligence of the adult child matters, if you can’t afford to loan them money and you do, it’s like you’re putting the oxygen mask on your parents before yourself.”
Young says ultimately, it’s the adult child’s responsibility to handle expectations and clearly communicate what the deal is. And if things go south?
“The adult child has to figure out how much do they want a relationship, or how much do they want their money back.”
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