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Monday, April 30, 2012

How to Loan Your Adult Child Money

The financial and emotional costs of lending money to an adult child runs high.

With credit markets still tight, it can be hard to secure a loan and many cash-strapped adult children are seeking help from the bank of mom and dad. Experts advise that parents do in fact act like a bank and set an interest rate (even if it is far less than a traditional bank rate) and create a payment plan.

But it can be a hard decision on whether to make the loan: You want to support your children, but you also want them to learn the lessons saving for what they want, and financial hardship, teaches.

“Parent-child loan arrangements can be great to help give kids a head start by buying a house, starting a business or going to school, and they can be a valuable part of many parents' estate plans,” says Alvi Aggarwal, an estate planning attorney with One Point One Legal in Alexandria, Va. “There are some legal and tax concerns, but it's easy to avoid major pitfalls by properly planning and carrying out the transaction.”
 

1 comment:

  1. Yeah-I wish we had the ability to loan money to our kids. The reality is families living paycheck to paycheck (myself included) have no chance in hell of helping our children have a better future. Fortunatly, they understand the position we are in, are a bit more financially savvy and I think, will be much more appreciative of the things they have because they have done it themselves.

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