question: This shutdown has resulted in both my son and his wife being on leave. Unemployment income seems to be coming up slowly and anyway only covers part of what they have been doing. They are struggling to make ends meet and we are considering either lending or giving money to them. What things should we consider when making our decision?
reply: This shutdown has certainly created financial challenges for many. The government is taking steps to help by mandating shorter processing times for unemployment income, business reviews, and forbearance on mortgage loans. Yet many families are in serious trouble. As a parent, it is understandable that you want to help. Before you venture out on family loans or cash gifts, consider the following:
Your email didn’t say you have other children, but if so, do these children need your help too? If so, can you help your son and these other children if necessary? Regardless of alienation or other problems, most parents try to help all children equally. When you are giving money to your son and unable to help another child who may be in need, resentment within the family can develop, leading to bad feelings between the siblings.
If you do decide to provide a loan to your son and his wife, you will need to document the loan and clarify the repayment expectations. You should write a promissory note stating when payment is expected and what interest, if any, will be charged. If you eventually die and your son still owes you the money, will the loan be granted or will it reduce his portion of your estate?
Any loan granting or reduction in your son’s share of your estate should be documented so that your trustee or executor has clear instructions on how to handle an outstanding balance. In general, this documentation should be edited by your real estate attorney – not that easy with today’s shutdown! If you can’t see your attorney, just write your expectations in writing and sign and date the document. Once the shutdown has been lifted, contact your attorney to see if the documents have been formally prepared.
The other alternative is to give your son a gift of money. In California, all gifts and inheritances received, even if you are married, belong to the recipient. So keep that in mind when you give the gift. When you write a check to your son, it is his separate property and he can decide what to do with the money. If you write it to your son and his wife, it will be their collective property. If you write the check to your son and he decides to put it in an account with his wife, he is coming now and the gift is now theirs.
Similar to the loan, you should decide whether this gift is an advance on his future inheritance from your estate or just a gift that is not intended to reduce his portion. This should also be documented. If you are able, you may consider giving monetary gifts to all of your children equally, and then “giving” a note or gift becomes a moot point. It is great that you can help your son. Just think about the process of keeping family peace.
Liza Horvath has over 30 years of estate planning and fiduciary experience and is President of Monterey Trust Management, a finance and trust management company. This is not legal or tax advice. If you have any questions, call (831)646-5262 or email [email protected]