FINANCIALLY
Speaking
Family Is Family , BUT Business Is Business
Jeffrey M . Orth is a Chartered Financial Consultant , a Certified Advisor in Senior Living , and an Investment Advisor Representative , with over 15 years of experience as a business and personal planning , insurance , and wealth management specialist . Jeff is available for group lectures and private consultations . Visit ifitfinancial . com or call 408.842.2716 .
1600234RM-Sep18
Ioften receive calls from my older clients who are thinking about withdrawing money from their investment accounts to provide some financial assistance to adult children or grandchildren . While the intention is almost always a good one , it can have some unforeseen consequences if there is not a clear statement of expectations . Before you write that check , there are a few things you should consider to maintain harmony in the family .
Some important questions to ask are :
Is it a loan ?
Loans with low interest rates generally have strict lending standards , which is why a family member might be looking to you for the loan , rather than going to an institution , like a credit union or a bank .
You and the family member can determine the interest rate on the loan , but if it is less than the IRS-required Applicable Federal Rate ( AFR ), the difference in dollars each year is considered a gift . The interest rate tax consequences should be discussed with your CPA for both the lender and the borrower .
At the very least , there should be signed copies of a written agreement outlining the details of the loan . Often people remember things differently and a written agreement at the onset can help prevent a misunderstanding and save a lot of hard feelings later .
Is it a gift ?
If it is truly a gift , you should be aware that the IRS allows a person to give up to $ 14,000 to any other person each year with no gift tax or forms required . You can give more than this amount if it is for education or medical expenses . Any other uses of funds over the $ 14,000 limit , requires that you submit a Gift Tax Return form when filing your income taxes .
Should you be doing this in the first place ?
Small gifts or loans given to your children are not likely to have a large impact on your long term financial security . But a gift of five or six figures could have a major impact on the viability on your financial future , especially if it represents a large chunk of your assets .
Even if this is set up as a loan , consider what would happen if the loan was not repaid . Would your retirement plan survive ? Who will support you if you run out of money before you run out of life ?
Will a little bit go a long way ?
Is it possible to help a family member in need without handing over a large sum of money ? If a child is struggling to meet monthly bills , perhaps you could send the difference between actual monthly expenses and and income for a pre-determined length of time , until hopefully , the child can get back on his feet and become self-supporting .
Is it going to cause any hurt feelings within the family ?
Any time money changes hands within a family , there is potential for misunderstanding and hurt feelings . The situation can be made even worse when family members don ’ t communicate openly and honestly . Whatever agreement you come to , get it in writing ! And teach your family that you will treat them fairly , which is not the same thing as equally .
Is it OK to let my financial advisor take the blame ?
There will come a time when a child wants or needs money , but you can ’ t or don ’ t want to offer assistance . As a Financial Advisor , I sometimes act as the “ buffer ” for my client . In a case like this , you might say , “ I would love to help you out , but I checked with my financial advisor and he says that I am not in a position to do that right now .”
I have also had clients who have asked me to work with their children to help them get on track financially . In these cases , I remind all concerned that the information we share is completely confidential . This is essential if anything meaningful is going to happen .
When it comes to families and money , communication is the key . Make sure that you use your heart and your head when you make financial decisions , and remember that a financial professional can be of help in maintaining that balance .
Registered Representative of , and Securities and Investment Advisory Services offered through Hornor , Townsend & Kent , Inc . ( HTK ). Registered Investment Advisor . Member FINRA / SIPC , 16845 Von Karman Ave , Ste . 225 Irvine , CA 92606 ( 949 ) 754-1700 . IFIT is independent of HTK . CA Lic # 0C49291
GILROY • MORGAN HILL • SAN MARTIN NOVEMBER / DECEMBER 2016 gmhtoday . com
15