Loan, Gift or Partner to Help Children Buy A Home?
As parents we all love our children and only want to help them. In the Bay Area parents almost have to help with a down payment. Do you give your children a gift or a loan? Is it better to be a co-borrower with them? Maybe be partners. If you help one child, you have to help the others. California is a community property state and that creates other issues. It is difficult to bring it up but more than half the marriages wind up in divorce and gifting child money to purchase a home is possibly giving your child’s ex-spouse a very generous gift. Asking a child to sign a promissory note is not always comfortable. In many families Money is a “taboo” subject. I helped my son purchase a home with the idea he was to pay it back when he could. My wife and I always had a good relationship with my son so we did not see any need to have a signed document. Hope that does not come back to bite us. He got engaged a year later and married a short time later. A wonderful girl and we love her like a daughter. Before he got married I explained to him Community Property laws and advised him if god forbids he got divorced he still owed the money. I probably would not collect it but I wanted him to understand the consequences. It is now almost 3 years later and we are very happy with our decision. I am writing this because most people are like me but some may not be as fortunate. A choice might be a loan and gifting the annual interest, another choice might be to be partners, or an outright gift. Whatever method of help you choose it will have tax and possible legal consequences for you and your child. I think anyone helping a child or any family member should speak with a lawyer and an accountant before loaning, gifting, or cosigning. I will close with what my father always told me; Don’t do as I do, do as I say. Wishing you and your children the best.
www.leesellsmore.com
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6 Responses to “Loan, Gift or Partner to Help Children Buy A Home?”
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great information Lee, I have always wondered why kids are not taught more about finances in school and at a early age. i suspect a lot of discomfort in life is over $$$$ and just maybe some of it could be avoided if there was more education.
Lee, great post. There is always a fine line when money is involved. I agree with Michael, children should be educated about finances in school. When I was in highschool, they allowed credit card companies to set up booths to try and get us to sign up. Great way to set young adults up for disater if you ask me. I guess it is really up to parents to teach their children responsibilty when it comes to money matters.
My mom told me when I was younger that I should save my money and pay a years worth of rent ahead of time so i could be comfortable and not spend my money foolishly. Not too long after she told me that, I got my real estate license and bought a few homes. Everybody is raised differently. My mother is afraid of risk and that stems from her childhood, I’m sure. I’m different and my kids will learn differently as well. Great post! Made me think!
Lee,
Great info!
The child, relative etc. should understand what happens if things don’t always work out, like how you explained it to your son.
Brian
Great Post Lee,
It does seem that money can be a touchy subject with people, especially when it comes to gifts and marriage. I do believe much of the key is being educated and having good communication about what may or may not happen as a results of your actions. Glad to see you are happy with your decision.
Excellant post