Skip to main content

Personal PlanningNeed a Hand Up?


This article was reviewed by Chris Singer, CFP®.

“I want to help my adult kids financially, but I’m not sure of the best way to do that?”

While it is natural for parents to want to help even grown-up children in any way they can, how you structure that help can make a big difference. We have found that asking some clarifying questions first can prevent conflict down the road.

Before you start handing over the cash, here are some things you should consider.

Is it a Gift?

If you have the financial means to provide a lump sum gift to your children with no expectation of being paid back, then it just depends on your comfort level – but first ensure your retirement is financially secure and that gifting the money to your kids won’t jeopardize your own financial situation. Is the gift only for one of your children? Should it be considered a pre-inheritance gift and deducted from any gift in your will? If you are making arrangements to gift money to only one of your children, consider sharing the details with the rest of the family in order to avoid potential disputes over your Estate later.

Is it a Loan?

If you expect your kids to repay the funds at some point, you should sit down together and hammer out the details. You will need to agree upon when repayment should start, how quickly the funds will be repaid, and if there will be any interest charged. Charging interest may seem awkward, but it gives the borrower incentive to pay off the loan. If your kids started to go on lavish vacations, or bought big ticket items before paying off the loan, what would your reaction be? Charging interest makes financial sense, and if you want to, you can always gift them the interest portion later once they have repaid the bulk of the loan. Make sure that you capture all the terms in a written agreement and that you both have a copy for your own records. Formalizing the arrangement reinforces the idea that you expect repayment and that this is a business agreement, not a gift. Without an agreement, there could be issues upon your death, or unanticipated consequences if your child divorced while the loan was still outstanding.

Is it an Investment?

Many clients wonder if they should help their adult children with a down payment for a condo or townhome. If you are looking to invest in real estate, this might be a good way to help your kids get started on the property ladder while also generating a return on your investment. Perhaps you can purchase the property and your adult kids will pay rent, or rent to own? Or you could provide a loan that doesn’t require any repayment until the property is sold. There are numerous ways to structure an arrangement like this.  However, if it is an investment, you should factor in the potential return you are hoping to earn. And if the property lost money, would you both lose equally in your investment?

For any of these scenarios, it is vital that you document the details in writing and ensure all parties are in agreement with the terms. Keep in mind that avoiding misunderstandings and ensuring your good family relationships remain positive is the most important detail of all!

See our latest article about Common Estate Planning Mistakes.