I'm sure we all remember the safety briefing on a plane - put your own oxygen mask on first before you help others.
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The same can be said about being led into the temptation to help adult children as we head into what has been described by the International Monetary Fund as a "deep recession".
Parents may see their children suffering through this COVID-19 crisis and be tempted to offer, or be asked, to render financial assistance.
Exercise caution, seek advice on any proposed help, and be careful not to let the instinctive pull of your parental protectiveness overwhelm your own necessities.
As a starting point, consider:
1. What is being asked or what are you offering?
The boundaries need to be clear. If the help is by way of a loan, you should consider the terms such as interest and repayments. If the proposal is that children move back home, presumably they are eligible for some form of government income. Consider whether board or expenses will be paid and what will and will not be included. Set ground rules on time-frames. Document any agreements so the terms are clear and there can't be any confusion about expectations and repayments at a later point.
2. Can you afford it and still achieve your own retirement goals?
What impact will this decision have on your own retirement goals? Young adults have the rest of their lives to rebound. You have probably lived through your own period of high interest rates and at least one recession without help. It's important to try to keep perspective. Start a conversation with your children about their current position, what they are doing to fix it, and what their plan is to get out of it. You may be able to offer guidance. Above all, seek financial advice to make sure your own cup is full enough before you start pouring from it.
3. How does it impact the rest of the family?
This is a very important and often forgotten question. From an estate planning perspective, it is critical because giving unequally to a child to the exclusion of the others can have longer-term consequences and lead to disputes about the terms of your will. Again, seeking advice on how to structure any assistance in this regard is critical to ensure conflicts are minimised later.
- Kylie Wilson is a partner and Nicole Treacey special counsel at Holding Redlich.
