Whether it’shelping your loved onesto get on the property ladder,paying fora wedding or buying a car,giving money to family membersis increasinglycommon practice. And yet for many families it continues to be a minefield of misunderstandings, when that doesn’t need to be the case!
Keep reading to find out what makes the conversation difficult to navigate and how to make it easier for thewholefamily.
What makesgifting money to familydifficult?
Whether you'rebeing approached bya loved one with a request, or giving a gift,the money conversationdoesn’t come easy to many of us. Here are a few things thatusuallymakes it atopic familiesavoid:
Money isstillconsidered a taboo subject
There are many reasons why money is such a touchy subject. A lot of them stem from our deeply rooted social habits, circ*mstances and upbringing.Be mindful of how sensitive the topic is to your family, especially if you don’t have a habit of discussing money together.
Fairnessbetween family members
Gifting money to grandchildrenor childrensometimesbrings up the difficult topic of fair share and whether you should offer equal help or prioritise those members in the family who need help the most.Whatever your decision, make sure you take the time to explain it fully to avoid misunderstandingsand resentments, and be prepared to answer questions they may have.
How money is used
Even if you agree onhow much you can gift your childrenor other family members, the way they intend to spend those financial resources might not be aligned with your opinions about what’s better or more efficient.Try to keep an open mind when it comes to their wishesand their perspective.
Worries about your own financial security
Evenif you are in the lucky position to be able to help your family, it can be difficult to find therightbalance between your family’sfinancial needs and your own.We really recommend talking to a financial adviser before making any decisions, to ensure you have all the information you need upfront.
Why is it important to talk beforegiving money to family members?
Despiteits reputation for being a thorny subject, it’s the very act of discussing money thoroughly with family thatstops it from becoming therootof arguments later on.Having an open conversation is a great opportunity for forward thinking and establishing ground rules. Problems arise when a lack of communication creates misunderstandings.
No one wants to think abouthow an upcoming house purchase would be affected by a separation or divorce. But it’s easier to have an honest conversation upfront about what should happen in these specific circ*mstances,ratherthan scrambling for a solution later on.
How to talkaboutgifting money to family
Here are a few tips to help younavigatethe money conversation a bit easier:
Be clear
Make sure your family members know whether the financial assistance you’re offering is meant as a gift or as a loan. It may seem obvious to you, but the potential for misunderstandings is especially high when it comes tounstatedintentions. If there arerepayments orconditions to be met, make those clear. Keeping a record of the agreement is also useful, especially for substantial gifts or if the money is intended as a loan.We recommend using a financial adviser to help you draw up official paperwork that clarifies where everyone stands.
Be honest
It’s natural to feel uneasy or embarrassed if the conversation moves around specific conditions for the money gift,or howsiblingswillshare your financial support. It’s normal to havefears aboutgiving money to family membersand what thismight mean for your own standard of living or wellbeing later on in life. Remember, the sameworries are likely to existon the other end of the conversation, and your family will likely prefer to discuss this openly to make sure everyone is taken care of.
Don’t rush into making a decision
If you’re being approached bya family memberasking for financial support, make sure you take your time before making any decisions. Even though you intend to offer the money as a gift, you need time todecidehow much can you gift your childrenor other relatives that may need the help. Remember to also find out whengiving money to someone is taxableto avoid hefty tax bills– a financial adviser is the best person to help with this.
Put yourself in their shoes
Thinking of the hopes and concerns your family membersmay have will help keep the conversation constructive.Try to see it from their perspective as well, and take a break if the conversation gets off course or becomes emotional.
Top questions to ask beforegiving money to family members:
- How much moneydothey need?
- How much can youafford togiftright now?
- Will they need further financial assistance in the future?
- If there are conditions you want to put forward, do they understand them and agree to uphold their part of the deal?
- What happens if the family relationship breaks down?
- What happens if you encounter financial difficulties later on?
Keep in mind thatinheritance taxrules may apply when giving money to your family. Find outhow much you can gift per yearand what the potential tax liabilities are with our handy guide, next.
