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MOTHER, MAY I?

April 17, 2015

A current real estate trend involves parents assisting their adult children with down payments on homes or with closing costs. Some parents even allow their children to move home again to save money or until they pay off some debt. The horror!

Here at Potente, we recognize many of our clients may face this reality or may have already assisted their children in the aforementioned ways. For those clients who think they may have to help their child, we empathize with you. You thought once you paid for that college degree, they would finally be self-sufficient and finally leave you alone to travel the world!
Unfortunately, your children are asking, “Mother, may I?” once more for several reasons. It could be the housing market in which your children live. The more competitive the market, the higher the prices, and the greater the pressure your children feel to pay large sums of cash up front that they probably do not have. Southern California certainly is one of those markets, so if your adult child is living here with no job, maybe you better tell them to scoot on over to another city or state!

Other reasons, perhaps the most obvious, are economic difficulties. Almost everyone has a bachelor’s degree these days, and an increasing number of individuals pursue even higher degrees. This means much more competition for jobs, which results in less young adults making enough money to self-sustain. Who would have thought more people pursuing degrees could be such a bad thing? Did anyone think more degree-holders would cause such a housing debacle?

Never fear: we at Potente have gathered some suggestions to cope with those puppy-dog-eyed 20 somethings you find at your door. There are several approaches our clients can take to facilitate this process, and the common theme is to pay your child in cash make it a gift. By law, you can make a gift of up to $14,000 per calendar year without worrying about gift tax. If you are making a gift with your spouse from joint property, you can double the gift to $28,000 per calendar year without any gift tax. Cash gifts avoid debts being repaid, and they most likely will come from accounts not gathering too much interest. Another reason is a cash gift avoids your own retirement funds—your retirement is much more vulnerable and is in greater need of protection than your child’s potential real estate.

You could also co-own the house with your child as tenants in common or joint tenants. This can help your child develop some credit, and may even yield tax benefits for you! Another suggestion is to buy the apartment or home and rent it to your child. Your child will be the best tenant you have ever had if they know what is good for them!

So before you let your baby back into your home, consider these alternatives. We at Potente believe it is important to keep both our client’s and their children’s interests in mind. We respect such generosity, and it is our privilege to help our clients ensure their assistance benefits both them and their children in the long run!

Disclaimer: this post is for informational purposes only, and merely recites the general rules of the road. Lots of legal rules have exceptions, however, and every case is unique. Never rely solely on a Facebook post in evaluating your situation — always contact a Business/T&E attorney when your legal rights and obligations are on the line.

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