Parenting Grown Children: What Dr. Spock Forgot to Tell Us

Leaving a Legacy:The Great Transfer of Wealth from us to our adult kids. Is it for real?

Here's what the headlines tell us: The greatest wealth transfer in history is here and we are the source of those assets. Yes. Some $84 trillion in our investment accounts, wallets and collectibles are set to change hands over the next 20 years, according to various economists whose job it is to run the numbers and make forecasts.

As far back as history goes, parents have passed on--transferred--to their children their acquired wealth. But something different is going on today. First off, there's exponentially more accumulated wealth involved thanks to a booming economy that started gaining traction after World War II and has continued to make gains. In 1989, for instance, total family wealth in the U.S. was $38 trillion (adjusted for inflation). By 2022, that wealth had tripled to $140 trillion.

Along with that, there's a large base making that distribution. Some 73 million baby boomers are aging and are beginning to reach the end of their life cycle. So there are a lot of us who are about to spread that wealth around via our wills and estates, such as they are.

Not all boomers are equal of course. Some of us will leave our children a few thousand dollars, a home or not much at all. Inequality reigns. But plenty of us may be able to pass along thousands if not a few million dollars worth of assets. The recipients will be our adult children and our grandchildren, that is Gen X (born between 1965 and 1980), millennials (1981-1996) and Gen Z (1997-2012).

The transfer is already underway, thanks to how generous many of us who have the wherewithal have been.  As I've noted in previous posts, we have been sharing our good fortune in the here and now--helping our children with a downpayment on a house, paying their way through college or gifting them money for an entrepreneurial venture. As a New York Times  article on the Great Transfer put it:

Heirs increasingly don’t need to wait for the passing of elders to directly benefit from family money, a result of the bursting popularity of “giving while living” — including property purchases, repeated tax-free cash transfers of estate money, and more — providing millions a head start.

Similarly, with a headline that read, "What does it take to buy a house? Increasingly, Mom and Dad," the Washington Post reported that "nearly 1 in 5 young adults said their parents have helped with rent or mortgage payments in the past year."

More specifically:

In 1994, 1.6 percent of first-time home buyers under 35 had a co-borrower age 55 or older. By 2022, after a pandemic-era spike, that figure had more than doubled to 3.7 percent, matching a high set in 2015.

A separate analysis of federal mortgage data set by Redfin suggests the trend in co-signers above 55 years old on younger home buyers’ purchases picked up even more in 2023.

But is the Great Wealth Transfer for real? Will we be able to pass on the enormity of our assets? I have my doubts.

I'm no economist and one anecdote does not a dent in an economic forecast make. But I know from my recent personal experience, it is jarringly and horrifyingly expensive to care for an infirm spouse and/or for a frail and ill us. We are not necessarily dying at 80 (as the economists figure in their forecasts) --we're living into our 90s. Not all of us will get there, of course, but more to the point, will we age into our 80s and  90s with our minds and bodies intact. I can tell you, the costs of caring for a spouse who has had a debilitating stroke or is suffering from dementia or Parkinson's disease--to name three of the top health debilitators among the elderly--can wipe out savings in a flash.

But that's a blog post for another day. Meanwhile, let's just be grateful if we are among those who benefitted from an enormous economic expansion. It helped us pull together a small pot of wealth with which we can help our adult children now and, if we're lucky, boost our grandkids later. Let's hope our kids are able to benefit from the Great Wealth Transfer.

painting: "The Ferryman," Ivan Canu

 

 

 

 

 

 

Money Matters: Raising cash to help your kids fix up their house

If I were to survey my friends and their friends, I'm pretty sure I would find that almost all of us who could afford it helped our grown kids buy their first home. As a generational trend, it's kind of what we did and do. For some of us, the help is a loan and we expect to be repaid. For others, whatever chunk of the downpayment we give them is a gift, no strings attached beyond an expectation of a few invites to dinner.

But what happens when we retire and feel less flush--especially today as the financial markets are eating away at our savings. Our kids may already own a house but may need substantial help to update or add on to it--for a growing family or even for a suite for us.

Should we tap our IRA to help them out? Or just say no? For one set of parents whose daughter needed a loan to renovate her house, the answer was yes, and with good reason. Once the renovation was complete, they planned to sell their house and move into their daughter's home. They couldn't sell their house to raise money since their daughter and her family were living with them while the renovation is underway.

So, how to finance the help for a daughter who's very much part of their future living arrangement?  The parents wrote to a Washington Post real estate columnist to ask whether they should tap their IRA for the $300,000 to lend their daughter or if there is a better way to borrow to finance the renovation, which is slated to take about a year. The parents plan to use the proceeds from the eventual sale of their home to boost their retirement account or pay off any loan they may incur.

Using IRA funds may be the simplest way to tap into money--interest-free cash! no closing costs! no bank fees! But it would be the worst of all possible options. Withdrawing such a large amount from an IRA would trigger a huge tax bill.

The columnist suggested other options. Here are the nuts and bolts of two options: A cash-out refinance of the parent's house would raise money but it would incur interest rates (ever-rising) and upfront fees. A home equity line of credit wouldn't raise quite as much money as a refinance could but would probably mean higher interest rates on the loan--though lower fees/closing costs. The interest rates might not be that much of a factor--if the renovation is finished on time and the parents can sell their house quickly to repay the loan.

Which is a long way of saying, our helping hand is a riskier business than ever.

(BTW: If you want to know more details on how the relative costs of the refinance versus home equity line of credit might work out, check this link to the Post story.)

art: Rauschenberg, Third Time

 

 

Observations: Michelle Singletary on when to cut an adult child's financial cord

I am not the only one writing about the helping hand versus tough love. Or how to find, as Michelle Singletary puts it in her Washington Post column, The Color of Money,  "the balance between protecting our children and letting them learn the hard way."

She does not--as I do not--have an all-purpose, one-answer-fits-all solution. It depends.  She writes about hearing from readers who are helping pay down their children's student loan debt and opening savings accounts for grandchildren ("We do not see this as an umbilical cord, we see it as an investment in their future.")  and another reader who is supporting a child while he gets his PhD ("He'll get the money sooner or later, and he might as well get it when it will help the most.")

To be sure, it is not all "thanks and I'll pay you back on your investment in me." There are times when we might not hand over assets. Some kids exude an unpleasant air of entitlement, which could be a signal to tighten the fist. And, of course, not all of us can afford to be as generous to our kids as we would like to be. 

Affordability aside, here's where Singletary comes down on the financial aid question:

Wherever you draw the line, take a step back and make sure you’re pushing your children toward being as self-supporting as possible.

Money Matters: We're still supporting our kids into their 30s and 40s

If we can afford to do it, a number of us are the financial backers of our grown kids. We're not just helping our recent college graduates with rent or a cell phone bill. We're doing the same and more for our kids in their 30s and 40s--kids who are established on their career tracks but moving into the "expensive" part of their lives, the time when they marry, have children, buy homes. (The percent of kids getting help, according to a 2018 report, is more than half adult kids between the ages of 21 and 37.)

The reason, per this NYTimes story: Millennial incomes today are lower than they were for Gen Xers and boomers at the same point in their lives. Many of today's millennials graduated from college into the recession, and that put them behind in terms of salaries and savings. Add to that today's real estate market: In many of the big cities where our grown kids live, the cost of simple housing is out of  their affordability range--if not for our help with a down payment assist here or a co-sign there.

Beyond cash outlays, some of us provide services that add up. A recently retired friend of mine babysits her eight month old grandson three days a week. The other grannie sits the other two days so that the mom could go back to work full time. The value--apart from the irreplaceable loving care--is  upwards of $25,000 a year.

While our kids may need the help, researchers found they don't feel great about taking it. Accepting help from the bank of mom and dad when you're in your 30s or 40s is evidently "the last taboo of finance that people don’t want to admit." 

Shame or not, our largesse gives our kids an edge. While families with means have always helped their children, what’s different today, the Times reports, is that the economy has more extreme gyrations, which tends to flatten wages. That's when family wealth plays an outsize role in helping people get ahead. Those who don't get that parental financial boost are grappling with paying off student-loan debt, which effects their ability to save to buy a house--a key way to financial stability and the building of wealth.  (Nationally, homeownership rates are falling for millennials; only two in 10 have a mortgage or home loan.)

A Boston real estate agent who works primarily with first-home buyers told a Times reporter that in the 20 years she's been an agent she has rarely seen anyone in their 30s who did not have family help or an inheritance for their down payment. (In the Boston market, a 20 percent down payment is between $80,000 and $100,000.)  In even pricier New York City, a real estate agent estimates that  a quarter of his 30-something clients who are buying larger, family-size apartments receive money from their parents, whether it’s in the form of a gift, a low-interest loan or co-purchasing.

It's a good thing we're around for them, as, evidently, more and more of us are.

 

 

 

Money Matters: What If They Ask Us for an Advance on Their Inheritance?

Many of us--well, those of us with the wherewithal--are inclined to help out our grown kids in the here and now, rather than have them wait till our last will and testament is read. The down payment on a car or a house; the tab for day care for a grandchild--these are some of the things we may offer to help with--by gift or loan--and that give us a measure of pleasure to underwrite.

But what if it's not us offering the assist but them asking for an "advance" on the money we'll be leaving them? Does it matter what the ask is for? Does their asking, rather than our offering, put a different cast on the "feel good" moment? Are they presumptuous in their expectations?

It's complicated. A woman who wrote to Social Qs for advice on whether or not to ask her elderly parents for an "advance" to make it easier for her to buy a house, be able to underwrite family gatherings and otherwise "enjoy some of it while they're alive." The letter writer also noted that her parents had willingly paid for the education of her sister's children and that an "advance" would more or less even the financial-legacy scales.

Philip Galanes advice to the daughter in question is one we might take into account if such a request comes our way.

If you are sure that [your parents] are still competent to make this decision and can afford it, ask for a loan. Let them decide whether to make it a gift. And drop the tit-for-tat with your sister over her children’s education. That help was given at another time and probably long planned.

My biggest reservation here is that many parents I know would go without to help their children (even deep into adulthood). If that sounds like yours, stick with your original plan to pay for the house yourself. There comes a time to put our parents first, after years of the reverse arrangement.

 

 

Money Matters: Six check-offs before you help your child buy a house

Here's the home buying news from Australia: 55 percent of first time home buyers (that's our generation of kids) got help from their parents (that's us) last year.

Here in the U.S, one-third of those 37 and younger used a gift or loan from family or friends to come up with a down payment for a house.

It's a first-world universal: If we can afford it, many of us take on that down payment assistance willingly. We may see it as a part of a “living inheritance.” That is, a chance to see our kids make good use of what’s coming to them when we're not around to see how they use it. Or, we may want to see our kids living free and clear of a landlord. Or in a better neighborhood. Or to have an investment that will grow with time.

But no good deed comes without complications. Here are  six big things to think about if you can afford to be a financial angel for their home purchase.

ONE: Family Dynamics.

There may be other family members--say, siblings of the future home owner--who feel the scales of parental largesse are being unbalanced, and not in their favor. It may be presumptuous and ungrateful on their part, but there it is. Communications about what you're doing and why--and whether the sibs can or should expect similar assistance--can keep everyone feeling fairness rules.   

TWO: Guarantees

If an adult child doesn't qualify for financing, parents may have to act as guarantors or as “co-signors” on the mortgage itself, meaning they are shown on the title as a co-owner and on the mortgage directly. Co-signing is the more common approach, but it raises several questions such as whether the parents have an actual ownership interest. There are also questions about what happens if one of the parties passes away or, if the child is married, gets separated or divorced.

THREE: Gifts

If an adult child qualifies for a mortgage on his or her own, parents can make the purchase more affordable with a gift that boosts the amount of down payment or helps lower the interest rate. No need for co-signing or guaranteeing. Write a check for any amount you choose. That's it — no contract or ongoing commitments. But gifter beware: Lenders like to see money gifts — easily traceable checks, bank transfers or wire transfers — in a borrower's bank account three or four months before they apply for a mortgage. Givers and recipients may need to sign letters confirming that the money isn't a loan.

In addition to or in lieu of down-payment assistance, a cash gift can pay all or part of an expense such as mortgage closing costs.

Here's an additional benefit to down-payment assistance: It can help new borrowers avoid paying for private mortgage insurance, which in turn helps keep their monthly payment lower.

FOUR: Loans

If it's a loan, you can still write a check for any amount but it's best to write it all down in a contract that defines obligations. Not only does that avoid misunderstandings--especially about repayment schedules--but if the parent-lender dies or becomes incapacitated, there's more transparency. All the heirs can view the transaction and its history.

FIVE Being A Banker

If we've got enough cash, we can be the mortgage lender. We can offer easier terms, like no closing costs or no down payment. We could charge a higher rate of interest on the mortgage than our money earns in a savings or money market account and still offer our kids a lower-than-market mortgage rate. But family lenders must charge at least the Applicable Federal Rate , the minimum interest rate required to keep the assistance from being considered a gift.

It's a fairly complicated business but there are companies that can help with the set-up details and provide all the forms and documents you need to meet state, local and IRS requirements. They can also guide families through the settlement and filing process.

Personally, this is too complicated for my taste. Plus, I wouldn't want to be my child's banker. Hard enough being their parent.

SIX Taxes

Anyone can give any other person a gift up to $15,000 in value (money or, say, stocks)  without filing the gift-tax return IRS Form 709 . So each parent can give each child — and the child's partner and their children — up to $15,000 each without having to complete Form 709.

Empty Nest, Refilled: The cost of housing is a universal concern for young buyers and their parents

The pressure on Chinese parents to help their Millennial-aged children buy a home is a jaw-dropper.  The Chinese one-family policy plus the urbanization of the economy  is creating a generation of Little Emperors  that have high expectations for how much their parents will do for them in terms of housing.  With housing tight in urban areas and unaffordable at the salaries the Little Emperors are earning, Chinese millennials are looking to their parents to help with the down payment on a house as well as a hefty assist with the mortgage payments.

It's a familiar story--at least the housing part of it.

In Australia, where there's a housing crunch too, a study of 2017 home purchases found that more than half--55 percent--of first-home buyers got a financial boost from their parents. It's quite a leap for the land down under. In 2010, only 3.3 percent of first-time buyers got help from mom and dad.

Here in the U.S., the pressure also starts at home. According to a recent analysis of census data by Zillow, in 2005 roughly 14 percent of millennials (ages 24 to 36) lived at home with mom and dad; today, it's nearly 23 percent. They're there for a variety of reasons but chief among them is the cost of housing in urban areas, which is outpacing wages.

Both millennials and their parents would like to see the youngsters move out and into a home of their own, and parents are helping make that happen.  A 2018 survey by the  National Association of Realtors found that, among homebuyers who made a down payment, 23 percent of those 37 and younger had the wherewithal of a gift and 6 percent a loan from family or friends — the highest proportion for either type of assistance among all age groups.

Feels like help with a down payment is becoming a universal language of love--or for parents who can afford it, a loving necessity.

 

Little Emperors: Complaints Chinese parents have about their grown children. It may sound familiar.

**

We've read a lot about our helicoptered kids. They're the one who, as young adults, have gotten used to their parents overseeing life's key decisions. Their parents have been spotted going on job interviews with them and even calling their bosses to complain when they believe their child has been treated unfairly in the work place.

We've also got our entitled young--and older--adults who think the world, to say nothing of their parents, should bend to their needs. These are the kids who expect--and are not particularly gracious about receiving--a parental allowance, even though some of them are grown up with children of their own. There are those who call this a "brat allowance."

Well, small world: Chinese parents have, according to a professor at China's Renmin University, "birthed a generation of freeloaders who feel entitled to leech off their own parents."

China's one-child policy is partly to blame, professor Zhang Ming writes. As he details his observations about these "Little Emperors,**" his commentary begins to sound familiar.

"Even after helping them find jobs and planning their whole lives out for them, a generation of so-called helicopter parents still feels compelled to help their kids buy a house. Lucky are those whose kids only ask for help with the deposit and don’t expect their parents to help them make their monthly mortgage payments, too."

In our country, recent surveys find that roughly one-third of Millennials hoping to buy a house will be relying on a loan/gift from a parent, grandparent or other relative to help with some or all of the downpayment.  There's been less follow-up on how many of us continue to help with the monthly mortgage payment.

Zhang Ming has more to report. When parents don't come up with the cash fast enough, the grumblings of Chinese adults

"are a fixture of social media feeds, where they whine about their parents having the temerity to suddenly go on a trip or moan about their in-laws playing mahjong instead of giving that money to their grandkids instead."

Evidently, it's woe unto the grandparents as well.

"Many grown children remain reliant on their parents for financial assistance even after they’ve had kids of their own, thereby perpetuating the cycle of freeloading into a third generation — except the grandkids don’t turn to their own parents for help. Instead, both generations sponge off their grandparents together."

 It wasn't always so. Zhang Ming says he asked many parents of these Little Emperors whether they had turned to their parents for help and support. Just like many of us tell our children or friends, those parents tell Zhang they never asked their parents for anything, not even "for a single yuan" and then, like many of us, they reel off the the challenges they overcame to get where they are today, including supporting their parents— not the other way around.

 Zhang Ming's conclusion about what he calls China's "kidult" problem:

China’s young people are paying the price of the country’s rapid urbanization drive. The high costs of migrating and living in cities have drawn multiple generations into the financial orbit of their youngest relatives, exacerbating a psychological disconnect between what is appropriate to demand from one’s elders and what is appropriate to give. The resulting emotional tug-of-war often does more harm than good.  But these reasons do not begin to explain the degree to which parents are expected to support their kids, however, or how kids came to feel so entitled to their parents’ money in the first place.

 **‘Little Emperors‘ is a name that refers to only children in China after the one-child policy was implemented. Attributed most frequently to increased spending power within the family unit and the parents’ desire for their child to experience the benefits they were denied, the syndrome results from the children’s sole command of the attention of their parents and grandparents.

 

Bank of Mom and Dad: What to do and how to do it when it's time to close the helping hand

 

Some of us tap into our retirement accounts or we delay retirement: We need the money to keep up with the relentless press of supporting our grown kids. Or grandkids. It may not be full support--just help with the rent, the cell phone bill or car payments. Sometimes it's a monthly stipend to defray their cost of living. For one of my friends, it was to pay for a major expense--the cost of a surrogate mother so a daughter could start a family. (The ensuing twins, priceless.) Another couple played venture capitalist and put money into their son's daring new business--which has since attracted real-life, Silicon Valley venture capitalists.

Whatever it is we're doing--and with whatever rationale we have for doing it--there comes a time when we want to or have to close the bank of mom and dad. The tipping point is different for every family; let us not judge our neighbor.

That said, when Closing Time comes, here are some tips from financial experts on how to tighten the fiduciary fist.

Set boundaries: One end of that boundary is to Just Say No. Make it clear that you will not provide assistance anymore. But if that isn't going to work for you--if it's too harsh or doesn't fit your situation--set financial boundaries, such as how long this will continue and how much cash will be involved. In some situations, you're doing yourself and your kin a favor. When support continues into a grown child's 30s and 40s, you may be an enabler: preventing your kids or grandkids from becoming independent and living within their means.

Make it legal: If you decide to be the mortgage banker for your grown child's home purchase, act like a bank. Have a lawyer draw up a contract  complete with dates when payments are due. Of course, you don't have to be the banker--for a mortgage or other large loan. You can walk your grown child into a bank--and even co-sign the loan (if you're sure you don't need to be paid back). That way, the bank is the debt collector, not you. Financial experts note that people are less likely to repay family members than they are a bank. Many of us do help out with the first-home down payment--not because are kids have been spendthrifts but because of student debt. Student loan debt seems to be the biggest obstacle standing in the way of young people buying their own home.

Use it to educate: However much money you decide you can afford to shower on your kin--a grown child or a grandchild--it should be a gift with no strings attached. Yes, they may squander it, but even grown children need to fall down and scrape their knees. Gifting them money that they may use unwisely is better than using your credit card to bail them out.

Get a second opinion: If you're lending money for a new or on-going business, don't limit yourself to your and your child's take on the business plan. Get an opinion from someone not directly involved in the business. And agree to specific terms--how much and when it will be paid back (if you hope to be paid back).

 

 

 

 

Leaving a Legacy: The case for giving them a share of your worldly goods now

The headline is provocative: "Why I Am Giving My Children Their Inheritance Now." The NYTimes story was told in the first person by a man who said of his financial standing, "I know what wealthy is. And I know my wife and I are not." Nonetheless Paul Brown, an occasional columnist for the NYTimes and the author of best-selling business books, clearly has a comfortable amount of disposable income and not many major expenses ahead of him--he has finished financing his children's college education.

That is why, he writes, he and his wife decided to begin to give each of their four children part of their inheritance now. Now, as in while their children are still setting themselves up in life as opposed to later when Brown and his wife are no longer around and the children are set up--living their lives with presumably there own reservoirs of disposable income.

Turns out the headline is a tad more provocative than what Brown is doing. Many of us give our grown children financial gifts in the here and now--or "loans" that we do not expect them to repay. Most of us do it on an ad hoc basis. Brown is more organized. He gives each of his children an annual check. He reports that the money is used by each of his kids in different--albeit responsible--ways: to buy a house, to fund a college account for a newborn, to start a business, to boost a savings account.

He seems to be saying what paterfamilias and I have long believed: If we are fortunate enough to have raised children who don't feel entitled --as Brown says his children do not--and who don't have wild or crazy spending habits, then why not share the wealth now when they need it. It's all well and good to believe they should be independent and stand on their own two feet. But how pleasurable it is to help them out.

Here are three reasons Brown gives for giving himself that pleasure:

They can use the money now

They are going to get the money anyway, in the form of an inheritance.

Who wants them waiting around for you to...... Brown spells it out this way: "Why, as a parent, would you want your children — even if it is on some tiny, tiny, tiny subconscious level — waiting around for you to die, so they can inherit money they could use now?"

Brown also notes that he and his wife have prepared the best they can for the future, saving money for retirement and carrying good health insurance. They are giving their children money that is expendable. It brings to mind a post I wrote  about a question Carl Richards (the "Sketch Guy" financial adviser who also writes for the NYTimes) raises about money: How much is enough? When we can answer that query we may want to share the excess with those we love.

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