Family eating outside

The news of late seems to be one story after another on how hard it is to make money go as far as it once did. Gas prices are floating around $2.00 a liter. Inflation is at its highest in decades. And housing costs continue to rise. All of this has more and more people looking for new or interesting ways to reach their financial and lifestyle goals, and secure their futures. One tactic that has been gaining traction of late is, in fact, a very old method – turning to family for assistance on big financial matters.

On the same side of that coin, there is also a growing trend for family members who have built a degree of wealth and financial leverage to use that to help their loved ones get a step up in an increasingly expensive world. Whether it is a parent helping a child with financing their first home, a grandparent gifting tuition funds or an adult child looking to provide care for a senior, the central point here is to help someone you care about.

For a parent or grandparent looking to help a younger family member, the idea is to enjoy the benefits while they are alive. Instead of waiting to bequeath gifts in a will, many are looking to help younger family members make a leap forward in life while the benefactor is able to enjoy the good feeling of seeing their loved ones flourish.

But whether you’re contemplating helping out someone in your family with a financial matter or asking someone to help you finance a major life investment, there are things to understand, discuss, and take into consideration before starting that conversation.

Asking for financial help

If you’re the one asking for financial assistance, there’s a good chance it’s to enter or advance in the real estate market. Many young people believe that the real estate market is out of reach for them, especially in British Columbia – home ownership feels like a dream of the past. The biggest challenge is saving for a down payment and in a market that always seems to be trending up, that makes it a moving target that’s very difficult to reach.

If this is your scenario, you might be wondering if it is time to ask for help from your parents. While it isn’t always possible and it isn’t an easy ask, there are many parents willing to help when and where they can. And for them, it isn’t just a ‘feel-good’ opportunity, it can even be a wise investment.

Before you do ask for parental help (or from any family member, for that matter), make sure to have a few things in order first. Do your research ahead of time so you come to the table with a plan and the information needed to make the right decisions for you and your family. Have an idea of the type of home you’re looking to buy, examine all the costs (including extras like strata fees, mortgage insurance, and legal costs), and talk to your financial advisor about what you can afford and how much of a mortgage you qualify for.

When you’re ready, talk to them in person (if possible). This is a serious conversation and a big ask, so don’t take it lightly. Talk openly and honestly about your financial situation, what you’ve done to prepare, the state of the housing market, the benefits of home ownership, and the investment opportunity presented. And make sure to discuss the terms of any agreement in advance of any money changing hands.

Information, transparency, and a solid plan are musts.

Offering financial help

If you’re on the other side of the table and thinking about offering financial support to a child or another loved one who may need a boost, similar guidelines apply: enter into the conversation with openness, frankness, trust, transparency, and a real plan in mind.

Gifting or lending money to help a loved one enter the real estate market (or make another big ticket purchase or investment) can benefit the family as a whole. But make sure you are not overextending yourself and your own financial needs. Consult a financial advisor to discuss what it feasible for you and how to make sure you and your money are protected for the future.

When you’re ready to present your idea, sit down as a family to discuss the opportunities and the risks, the amount of money in question, and the terms and conditions of any agreement. Whether it is a gift, a loan, or a shared investment, have a plan in place ahead of time so that you’re all on the same page if and when things change down the road.

Understanding the terms (and conditions)

Make sure all parties understand what the transaction is all about, what it means, and what obligations or legal matters may apply. Speak to a professional advisor for a clearer picture, but know first that there are critical differences between a gift of money and a loan of money.

For example, if the money is a gift toward a home purchase and there is no expectation of repayment, there are certain details that the mortgage lender is likely to require from the parties involved– the amount of the gift, the relationship to each other, the source of the funds, among others.

If the money is a loan and there is an expectation of repayment, the lender may ask the benefactor to co-sign the mortgage or act as a guarantor, depending on the financial situation of the would-be home owner. This can have implications for the benefactor’s taxes should the home be sold again in the future and there are responsibilities to bear if mortgage payments fall behind.

Meeting with BlueShore advisor

Protecting your interests

Money matters can cause family friction – to avoid this, do your prep work, make things clear up front and review the details of any loan or gift agreement. It’s imperative to do the work ahead of time, communicate openly and honestly, and have proper documentation of any and all decisions.

A change in a family situation (such as a marriage, divorce, death, or additional children) can also change the entire dynamic of the agreement. There are strategies you can employ to protect the gift, for example, from a marital breakdown – a second mortgage, use of a trust, joint purchase, etc. Speaking with an advisor can help determine the best option for you, plus we recommend that you seek legal counsel regarding items such a gift or loan of funds. This is particularly important as you may also need to update your will to reflect the gift or look at adding any lending onto the title of the property.

Make sure to weigh the legal, tax, and personal implications of a gift or loan.

Getting the right advice

Whether you’re looking at a home purchase, investing in higher education, or any other matter involving a sizable amount of money, getting help from or providing help to a loved one is a big decision. Advice from an expert can help. With the right financial advice, you’ll gain from the perspective of someone who has the experience and knowledge to help you manage the complexities of a gift or loan. Plus, they can offer advice and guidance on resources, strategies, and agreements you’ll want to have in play. Reach out to us today to see how such a plan can work for you and your family in achieving important life goals.

Michael Chen, Financial Advisor, BlueShore Financial

Michael Chen

Financial Advisor

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The information contained in this article/video was written by BlueShore Financial or one of our expert financial writers and was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. It is provided as a general source of information and should not be considered personal financial advice.