Should I Borrow Ot Take Money From A Parent
Should you borrow or take money from a parent at the end of their life? Before we can answer that we need to define precisely what we mean. For this article, we’ll define the end of your life as older than seventy-five. Seventy is probably a reasonable number as well, but we’ll stick with seventy-five. Just pay attention to what this article implies once you hit seventy. We use these numbers because most people on average live until eighty. This means the last years of your life start sometime after seventy.
These years are critical for seniors that want to remain independent and in control for their remaining years. Staying independent requires financial security. In other words, seniors need to have enough money to manage the end of their life. These years can be difficult because this is when our health gets the worst. It is also when concerned family members often step in and start financially assisting seniors.
Of the thousands of seniors, we interviewed for this project, Carmen and I estimate that up to 45% of seniors gave money away at the end of their life outside of their estate plan. In other words, seniors were giving or lending money to family members and friends.
By outside of their estate plan, we mean that seniors distributed money or assets without a plan or documentation. In almost every case we had the opportunity to investigate in detail, the outcome was bad. What are the issues with borrowing or taking money from a parent? What do you need to know about the issues?
Moving Money As Part Of An Estate Plan
Estate Plans are a mechanism for planning what to do with your money. They are especially useful at the end of our lives. Estate Plans can account for and accommodate almost every imaginable type of money or asset transfer.
Estate Plans can account for transferring money to family members to help with college, the start-up of a business, or unexpected medical expenses. By planning, family members are not taking money. If you can imagine it, an estate attorney can work it into your estate plan.
Money moved as part of a plan is fine. It is planned.
Taking Money From A Parent Outside Of An Estate Plan
Moving money outside of an estate plan is a problem. Just because a child, grandchild, or another family member, calls and needs money, is not part of a plan.
CarePlanIt’s best practice is NEVER TAKE MONEY from a parent when they’re at the end of their life. If you want to play a lawyer and debate the “end of life” comment, use this pronouncement. NEVER TAKE MONEY FROM A PARENT OVER THE AGE OF SEVENTY-FIVE. This is CarePlanIt’s best practice.
Family Members Always Fight Over Unexpected Money Transfers
Carmen and I spoke to over a thousand seniors in developing CarePlanIt. Not once did we hear of a positive experience when a senior, at the end of their life, distributes money or property outside of the normal estate planning process. In other words, anytime a senior gave away money in the last few years of their life to a child, grandchild, faith-based organization or anyone else it created problems among remaining family members. The person receiving the gift might have been happy, but this was rarely true of their sibling or family members.
There are reasons for the unhappiness. Is the person taking the money borrowing, or taking? A loan is a carefully documented transaction. A good loan document is written by a lawyer. It lays out the terms and conditions of the loan. It includes things like interest rate, repayment schedule, late fees, collateral requirements, and default provisions.
This is not what Carmen and I observed from seniors transferring money to others at the end of their life. What really surprised us was that we didn’t see videos of these issues discussed, even though almost everyone now has a cell phone with video functionality. Instead, we heard a lot of this is what Mom (or Dad) wanted. When we had the opportunity to ask other family members if that was what Mom (or Dad) wanted the response was almost universally, “Absolutely not.” That’s why loans are carefully documented, and end-of-life family loans are not.
Top Reasons People Take Money From A Parent Toward The End of Their Life
People ask their parents or grandparents for money for many reasons. The help wasn’t always cash or a check. Sometimes it was co-signing or guaranteeing a loan. Sometimes it involved gifting property which in turn could be sold or borrowed against. Carmen and I discovered the reason or need for the money fell into the common categories below.
> Addiction treatments
> Home purchases and remodeling
> Support for grandchildren
> Faith-based donations
When we asked family beneficiaries of the money transfers whether they believed the money was borrowed or a gift we heard a pretty consistent response. It was something like:
The money is a loan. I plan on paying it back. If Mom (or Dad, or Grandfather or Grandmother) wants it back. If she really needs it I’ll pay it back. Unless she dies. If she dies she doesn’t want me to pay it back.
This is why we recommend taking money from someone at the end of their life is a bad idea.
If both parties think the money transfer is important, they should stand in the shoes of objective parties. This is CarePlanIt’s next best practice. If you absolutely want to transfer money, do it objectively.
Best Practices If A Child Takes Money
Here are some basic steps you should take:
Taking Money As A Loan
> Use a lawyer to draft the loan document. Or at the very least get a standard loan agreement from Legal Zoom or another reputable online legal service.
– Cover all elements in a standard loan (interest rate, compounding period, repayment schedule, late fees, default provisions, etc.)
> Have the loan document signed and notarized
– Believe it or not Carmen and I heard stories of family members accusing other family members of forging signatures on documents or making a senior sign under duress)
> Videotape the signing (at least the parties signing) and ask the senior to describe details of the loan so other family members know the terms are understood.
– Videotape the senior describing why they are making this loan and have them explain how this loan should affect their estate.
– Specifically, if the loan is not repaid, does this have any impact on the distribution of the senior’s other assets. What effect would this have.
– – Has this been incorporated into the estate plan?
– – Does the senior want the estate plan adjusted?
Taking Money As A Gift
> Videotape the senior describing why they are making this gift and have them explain how this gift should affect their estate.
– Specifically, does the gift have any impact on the distribution of the senior’s other assets?
– – What effect should this have?
– Has this impact been incorporated into the estate plan?
– – Does the senior want the estate plan adjusted?
– – Who will make the adjustment?
– – When will the adjustment be made?
Changes to Wills like those that may be suggested above, require legal documentation. A “Codicil” is the legal document used to make a change to a Will. It is much simpler than rewriting a Will, but it requires some of the form, and the authentication a will requires. Always see a lawyer to ensure your changes are integrated into your estate plan.
Note: parties involved in faith-based donations understood them as gifts.
Rerferences Concerning Taking Money From A Parent
To understand family communication best practices, see our Section on Family Cmmunication.
An interesting take on parents giving money to adult children here.