Co-written by: Aimee Butler & Moorea Monaco
COVID-19 has impacted jobs across all sectors, and State Unemployment Agencies are reporting an unprecedented backlog of claims. We have been hearing from our clients of a desire to assist their adult children financially. Many of the questions include how and what kind of support to provide and if it makes sense. If you are in this situation, here are some ideas on how to temporarily assist your adult children during a financial emergency.
Start an emergency cash fund for your child.
- Make a one-time deposit or smaller, more frequent deposits to a high-yield savings account (like Flourish).
- Fun idea: Many banks or credit unions offer change deposit programs. They’ll round up your debit card purchases and transfer the extra change to a savings account. Think of it as a “Change Jar.” It adds up quicker than you think!
- When your child encounters a financial emergency, make one-time distributions or loan them the money. Anything they payback can be put back into the savings account for future needs.
Gift them highly appreciated shares of stocks or mutual funds from your Non-Retirement accounts.
- It could potentially benefit you by helping you avoid the capital gains tax if you sold the shares while they were still in your account.
- After the shares are gifted to your child, they can choose when to sell the assets, and they will incur any capital gains tax on what is sold. Structuring your giving this way can potentially reduce taxes for the family.
- Discuss this option with your Merriman Wealth Advisor to make sure it fits into your Financial Plan.
Offer small cash loans to cover emergency expenses.
- Discuss a payment plan that can start once your child’s financial situation improves.
- If mutually agreed upon, an interest-free loan with a small monthly payment is still more helpful than anything any bank could provide to them.
- It never hurts to have the agreement in writing and signed by both parties.
If you can’t provide an infusion of cash, little gifts can still make a big difference!
- Give gas or grocery store gift cards when you can.
- Meal prep large casseroles or frozen meals that can be heated quickly and serve many portions.
- Offer childcare when you can.
Help them review all options in their own financial life.
- They may be able to take a special distribution from their own IRAs or 401(k)s for hardships due to COVID-19.
- Introduce them to your Merriman advisor to help guide the review process.
- Do not co-sign a loan for your child. As much as you want to help them, you could become liable for the loan, and it can negatively impact your credit history.
- Do not ignore the tax ramifications of using retirement assets such as IRAs or annuities to give cash to your child. These assets can be taxed as ordinary income and have the potential of significantly increasing your income tax liability.
- Do not stretch your own finances too thin. You need to protect your financial security first. We always recommend discussing large gifts with your Merriman Wealth Advisor, whether they be to charity or a loved one.
As parents, it can be extremely difficult to watch our children struggle financially and equally as hard to balance helping and overreaching. When making these types of decisions, we find that an objective third party like our advisors can help you make a decision that works for everyone. We encourage you to reach out if you need guidance with how best to help. We are here for you and your family.
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Aimee knows how overwhelming big life changes can be and enjoys serving as a sounding board for her clients when they have decisions to make. Simplifying a client’s financial life and making sure all those puzzle pieces fit together is what she loves to do.
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