Video Transcript:
00:00:00:00 – 00:00:17:10
Parents come to me saying, “I want to help my kids. What’s the best way to do that?” I think it’s very important for parents to determine whether it’s a gift or a loan.
00:00:17:12 – 00:00:33:14
A gift is a gift, and it’s non-recallable. A loan is something that you can pull back at any point in time, just depending on what the legal documents state. But oftentimes, people use a loan to protect the family assets.
00:00:33:16 – 00:00:48:17
When you’re applying for the mortgage, the banks will want to know if it’s a gift or a loan. It has to be noted with a letter. It’s very, very important to get the right professionals behind you to make sure everything is documented properly.
00:00:48:19 – 00:00:56:21
If you’re cosigning for your child, you need to be very aware that you are on the loan documentation and you are liable for the loan.
00:00:56:23 – 00:01:14:14
So when I’m working with the parents, I always look at everything from a risk perspective on how to protect the family assets and how to protect the family legacy. Obviously, there’s a lot of moving pieces that we work through in terms of affordability, family fairness, tax estate questions.
00:01:14:16 – 00:01:28:01
Intergenerational real estate is always a hot topic when it changes hands. I think a lot of people underestimate the taxes owed. So it’s very important to talk to your accountant, your lawyer, and your financial advisor.
00:01:28:03 – 00:01:53:05
The one thing I recommend all parents do before helping their kid buy a home is look at what it costs to carry the property. There’s property tax, strata fees, maintenance, there’s all these cash flows that are coming out that the child will assume the liability for so it’s really important to get into price range where the monthly spend is something that is comfortable for all parties.
00:01:53:07 – 00:02:24:12
So as an advisor, the framework that I use to help determine what a parent can gift to their kids is looking at a few different things. First of all, you need to look what your future spending is going to be going forward. The actual assets that you’ve accumulated that you’ve worked so hard your entire life to build. How much of that can you can you afford to give up based on your current spending based on your time horizon how long you’re going to live for and making sure you’re not putting yourself at financial risk helping your kid?
00:02:24:14 – 00:02:45:21
One helpful thing that I think all parents should know is notify the person that’s managing your money as soon as you start thinking about helping your kids fund for real estate. So what parents can do to set aside money for real estate purchases coming up is start very, very early, sooner than you’d expect.
00:02:53:05 – 00:02:55:04
[Crew] That’s great.
[Collin] I appreciate it.