As Baby Boomers enter their retirement years, many find themselves in a position to assist their millennial children financially. This assistance, whether it’s to help buy a home, pay off student loans, or start a business, can significantly impact millennials’ financial stability.
However, Boomers often worry about protecting these gifts and investments should an unexpected life event occur such as divorce. We wanted to share our suggestions for those considering offering financial help, while safeguarding those assets.
Get it in writing
Firstly, it’s essential to understand the importance of legal structures. One key decision is whether to provide money as a gift or a loan. Gifts could be considered marital property unless protective steps are taken, whereas loans, if documented with formal agreements, may be excluded from marital property. Encouraging children to consider prenuptial agreements is another important strategy. These legal contracts can specify that any financial gifts or loans from parents remain separate property in the event of a divorce.
Proper documentation of any financial assistance is also crucial. For loans, a written agreement detailing repayment terms, interest rates (if applicable), and what happens in the event of default should be created. Additionally, it’s advisable for children to maintain these monetary gifts or loaned funds in separate accounts instead of joint accounts with their spouse, as this can help demonstrate that the funds were intended for individual, not marital, use.
Structuring to protect
Considering trusts and estate planning can further protect financial contributions. Establishing a trust allows you to stipulate how and when funds are distributed, ensuring the assets are protected according to your wishes. Consulting with professionals is a practical step to explore the best ways to provide financial assistance without jeopardising your financial security. Financial advisers can help evaluate the various options available, and your solicitor can draft the necessary legal documents to protect your financial gifts.
Communication is key
Open communication and transparency is critical. Discuss expectations with your children about your financial assistance, including how the money is to be used and the importance of safeguarding it. Additionally, educate your children about financial planning and the importance of protecting their assets in the event of a marital breakdown. This education can empower them to make informed decisions.
We love to assist our Baby Boomer clients to significantly support their millennial children’s financial endeavours, but we know how crucial it is to take appropriate steps in protecting these financial contributions from potential disputes. Understanding legal structures, documenting agreements, considering trusts, consulting a professional, and maintaining open communication are all important strategies to ensure that your support has a lasting and protected impact. Every family’s situation is unique, so tailor your approach to your specific circumstances and seek professional advice to navigate the complexities of financial assistance and asset protection effectively.
