When our kids are 20-somethings, they may need a little financial assist. A good job may not materialize right after graduation; school loans may be a drag on an entry level salary; we might prefer to pony up for part of their rent than have them live in an unsafe, low-rent neighborhood.
But when they get to their 30s or 40s, the calculus changes. They ought to be on their feet and independent. And yet, parents of 30, 40 and even 50-year-olds still feel the pull: We want to help out. A need is a need: Who's to judge? A 40-year-old child may have lost a job, be going through a divorce or have extraordinary education costs for the kids--your Grands.
The problem for those of us who are retired--and if our kids are in their 40s, we may well be--is that we're no longer bringing in the big bucks. Pensions and social security aside, the earnings from savings are a big chunk of our income. What if we live to be 100? If we give too much away, we could be without adequate means.
That said, if we can afford to help out, why shouldn't we? Here's one reason: Fairness to the other kids. Whatever savings we don't use up in this lifetime are part of the corpus we leave our children--all of them and presumably equally. And that's the hitch. We're giving more to the child in need by giving money up front--at the expense of the other children, all of whom split what's left.
There is a way around this, according to B. Kelly Graves, a financial adviser. Writing in the Wall Street Journal, Graves suggests making the financial assistance to the child in need a loan that's due in, say, 30 years, or when the second parent dies. "Even though it’s a loan," Graves writes, "the chances are the client [that's you or your spouse] is never going to see that money again." But now the financial aid is, in effect, an advance on the child’s inheritance and the loan is repaid to the parents’ estate from the child’s inheritance. So the assistance is not a handout, the estate is made whole [at least on paper] and the split becomes equal among the heirs.
Now all that's left is too have the conversation with everyone that explains the strategy. Good luck with that.
