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Few situations have a greater
potential for problems as when dealing with money and
relatives. If you’ve ever had a child ask you for a loan or
a distant relative request money to start a business, then
you know just how touchy these situations can be. Here are
some real-life situations, along with some simple steps to
help you safely navigate the tricky waters that result from
mixing family and finances.
John and Sue were approached several years ago by their son,
a recent medical school graduate. He wanted to purchase some
land on which he and his family would eventually build a
home. When it came down to working out the details, he
discovered that he needed help. Scrambling to make the deal
work, he pressed Mom and Dad.
They agreed by signing for the loan and titling the property
in their name. Their son made the monthly payments directly
to the bank. But John and Sue didn’t realize the risk they
were taking.
John and Sue are medical professionals and have protected
their assets from lawsuits using malpractice insurance,
special trusts and partnerships. From a liability
standpoint, they have protected the ‘front door threats’ but
ended up leaving the back door wide open.
John and Sue just discovered that their son is in the final
phase of moving a house onto the property. Suddenly John and
Sue realized that they were the ones that would be liable if
one of the workers was injured or killed.
It was different for Frank and Jane. They thought it would
make a good investment to buy a home near their daughter’s
college. She could live there while she was in school, and
they could sell the house after that. The home was in their
name and the loan was in both the parents’ and child’s name.
It seemed like such a good idea at time.
Now their daughter has finished school and recently married.
Guess where she and her husband are living? And guess who
has yet to pay a penny in rent? Worse yet, Mom and Dad are
left holding the bag. It is way past time for their chick to
sprout wings and fly on her own, but there’s little
motivation to leave that comfortable nest.
For Sam, a successful surgeon, it’s not just the kids that
want a piece of his wealth. It seems like a week doesn’t go
by that he doesn’t hear about some hot business idea from a
distant relative or casual acquaintance.
There are several steps you can take to avoid these
uncomfortable situations. First of all, don’t let emotions
force you into making bad business decisions. As much as you
want to help your child, don’t let short-term situations
push you into long-term commitments you’ll regret later.
Assuming you’re comfortable offering financial help, the
number one rule is to eliminate any possible confusion or
uncertainty by having everything in writing. There are
several inexpensive software packages available that have a
myriad of legal documents that can be modified for your
unique situation.
Second, consider using a go-between, such as a lawyer, CPA,
or financial advisor. This person will work for your best
interest and keep the emotional aspect to a minimum. And in
the event that your child or relative doesn’t keep their end
of the bargain, the go-between can do the dirty work on your
behalf.
This brings us to our third point, which is to enforce any
agreements you have. It doesn’t do much good to have a
contract you don’t actually enforce. Otherwise they won’t be
motivated to fulfill their obligations.
And if you’re like Sam and tired of being pestered by
relatives for money, a financial go-between could be the
perfect solution. After a while, the word will get out that
you’re no push-over and your go-between can still determine
any ideas that actually do have merit.
By keeping details in writing, using a go-between, and
enforcing agreements, you’ll help your kids learn to be
responsible adults and stand up on their own. And hey, maybe
someday when they’ve become successful, you can hit them up
for a little payback of your own. “Son, have I got an
opportunity for you!”
If you’d like free, clear, unbiased advice submit your
questions to www.guardingyourwealth.com/askjeff.htm.
Mr. Voudrie is a Certified Financial Planner, nationally
syndicated newspaper columnist and President of Legacy
Planning Group, Inc., a Private Wealth Management Firm in
Johnson City, TN. He can be reached toll-free at
1-877-827-1463 or at
jeff@guardingyourwealth.com.
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