Financial Management

Providing financial support to others

Overview

Running out of money is a common fear for retirees. In addition, there is sometimes the added pressure of adult children who are in need of financial support. This can be a touchy situation in families and contribute to fraud and abuse of elderly parents. By discussing these situations in advance, you can decrease worry and mitigate family conflicts over money in the future.

There are a number of considerations when providing financial help to an adult child.

• Is the need temporary?
• Will assistance help the child obtain future independence?
• If the need is permanent or future financial independence of the child is not possible, for example in a child who has a serious disability, who will provide for the adult child when you are no longer alive or in a position to help?
• Are budgets being followed by you and the family member needing assistance?
• Have limits been set on how much assistance will be provided?
• Are other members of the family apprised of the situation?
• Is the money expected to be repaid or will it reduce any future inheritance?

Plan for those who need permanent help.

If a family member needs permanent assistance that you are providing, making plans for their future with a financial planner and attorney is paramount to ensuring their security after you are no longer able to help and after you die.

Set rules when providing temporary support.

For situations where financial assistance should not be permanent, when providing support, it is important to work with your family member so they can reach financial independence without your help. Budgeting education, career planning, and therapy may be required to help them make it on their own. Loans or gifts to start small business are common - if this is the situation for the support, the family member should develop a business plan before even starting. If you are not adept at teaching these skills, hire assistance as it will be cheaper in the long run.

Create budgets and set limits on help.

Know your own budget and how much you can afford to help. If needed, hire a financial planner to help you with your budget and to convey to the family member that assistance to them would be detrimental to your financial future.

The hardest time for a parent is when limits on assistance are reached. If you say no to their requests for help, the family member may become angry, threatening, or passive aggressive. This is a time physical or emotional abuse may occur. In this situation, enlist the help of other family members, a financial planner, or an attorney.

It is important to stay strong, as continued "caving" will only enable your family member and their demands in the future may intensify. This is difficult with someone you love. By enabling their dependence on you, you risk their failure in the future when you are no longer around to help.

Use engagement standards to set the rules

When family members request assistance, another good tool is an "engagement standard" spelling out the assistance you will provide, the purpose of the assistance, whether or not the money will be repaid, and what the family member will do to mitigate the chance they will need help in the future. If the money is not repaid, will this reduce any future inheritance? Although difficult, family discussions around these issues while everyone is alive and well can improve family dynamics and reduce discord in the future.

By thoughtfully approaching how you provide financial assistance to others, you can improve your future financial peace and keep your family dynamics healthy in the process.