Financial Management

Family agreements - financial assistance

Overview

Money issues are a major cause of family disagreements. High on the list are disagreements around providing financial assistance to adult children and other family members. You want to help people you love, and you want them to stand on their own without your assistance. A little financial help is often all they need to get started, but too much help may be a set up for failure.

When lending a hand, it is important to set rules that will be followed to ensure future financial independence. We suggest families create "engagement standards" to spell out the responsibilities of both parties in the transaction. These agreements should outline practical considerations and come from the heart. In regards to providing financial assistance to family members, the following are important components of the engagement standards.

• What support will be provided?
• Amount
• Time frame
• Loan or gift
• What is the purpose of the support?
• School or job enhancement
• Support through an unfortunate event
• Help starting a business
• Does recipient have a budget?
• Does recipient have a business plan?
• Does recipient have a schedule for finishing education?
• Does recipient have a planned job search?
• Repayment of loan if applicable
• Consideration of reduction in future inheritance
• Possibility of future assistance
• Family actions for the following
• Failure of recipient to follow through on agreement
• Action of supporter if recipient needs more assistance

The agreement must be created and agreed to by both parties. Starting with a sample agreement, both parties can "take a stab" and include the components they think are necessary and that they can uphold. The parties should then share agreements and find consensus on what will be included. If they cannot find consensus, it is recommended to get a third party to help negotiate the sticky issues.

After signing the agreement, it should be revisited periodically to make certain both family members are upholding their side of the agreement. If the agreement is not being followed, it is recommended that outside help from a financial planner or therapist be considered.

Click here to see a sample family financial assistance agreement..