Helping parents financially

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When providing financial assistance to parents, it is important for those involved to consider all possible scenarios, and document intentions to avoid pain if relationships deteriorate. Here are three outcomes those helping out their parents should consider:

Marital breakdowns
If you support your parents by, for example, purchasing an investment property with them or paying their bills regularly, make sure you’re aware of who can make a claim on assets i.e. if you and your spouse split, can your ex make a claim on what has been given to the parents?

In a marital breakdown, the division of assets is based on various factors, such as the length of a marriage, the earning capacity of each spouse and whether there are dependant children of the marriage.

While the paying of the parents’ bills in this scenario is unlikely to be included as an asset, it may be difficult for the child’s share of the property not to be included in a calculation of the ‘pool of assets’.

Changes in the financial circumstances of siblings
Siblings who purchase property together for their parents to live in need to consider what will happen if one or more siblings become unable to make the mortgage payments.

Before purchasing property, siblings need to create an agreement in writing, with each party obtaining proper and independent legal advice. While this may seem unnecessary in family situations, it is not uncommon for a person’s circumstances to change through no fault of their own, which can lead to family discord. If everyone knows the rules beforehand, then disputes later are minimised or avoided altogether.

Where there is a mortgage on the property, all owners usually have to agree to be liable for the mortgage. It should be noted that if the mortgage was to go into default, it would affect all of the sibling’s credit rating.

If a sibling wishes to exit, the other siblings can buy their share. The sale is usually based on a market value of the property at the time, and requires the agreement of all owners.

Siblings can sell their share of the property to an outside party, but only with the consent of the other owners. If there is a mortgage, then the mortgagee’s consent will be required as well.

Unequal contributions or inheritance within the family
A common issue to arise upon a parent’s death is the feeling of entitlement one child may feel if they have financially helped out the parents more than the other children. However, this feeling of entitlement is not completely accurate when it comes to administering the estate.

Parents should largely address this issue. If a child gives money to parents, it may be considered as a gift. If a child provides a loan to a parent, the loan should be in writing before death and reflected in the parents’ will, recording that the estate will repay the loan.

If property is involved, then the child’s involvement should be reflected in the ownership i.e. where a child owns a share of the property, the death of a parent will not affect the child’s investment.

A parent may also choose to leave a larger portion to one child over another. While this may be to reflect the child’s contributions made before death, this situation is likely to cause more trouble than what it is worth. Unless there is careful discussion before death, the child with the smaller portion of the estate is likely to make a claim, which can lead to unnecessary stress and legal fees.

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