Helping Kids Buy a Home: Risks, Lessons & Legal Protection

Pete and I were thrilled when our son Josh announced that he and Robin had found their dream home.

We were all so caught up in the excitement that when they asked if we could help them buy a home we readily agreed.

They needed $98,000, and having recently retired, we withdrew the lump sum from our pension fund. It was a large amount, and of course we were a bit anxious, but Josh was so happy that we pushed our doubts aside.

We expected that reducing our investment capital would impact its earning capacity, but we really hadn’t considered the effect that would have on the longevity of our income stream.

By the time we understood that, it was too late.

Josh and Robin bought the home, moved in and everything was great for a couple of years. Sadly, it wasn’t meant to last, and the relationship broke down.

When the house was sold and the mortgage paid out, there was money left over. We naturally assumed that our capital would be returned, but Josh and Robin simply split the proceeds between them and went their separate ways.

When Pete asked Josh about our money, Josh became defensive and claimed it had been a gift.

We tried discussing it, explaining our position, but we were all too emotional. The ensuing argument created such a rift that we had no contact with Josh for nearly three years.

Realising we’d also lost our money I felt sick – we were certain to outlive our savings!

Our retirement plans were thrown into disarray and our family torn apart by a terrible misunderstanding. Yet, there were steps we could have taken to avoid it all.

We should have:

1. Sought financial advice. Had we consulted a financial advisor, we would have understood the impact such a withdrawal would have had on our retirement strategy.

2. Consulted a solicitor and had a formal loan agreement drawn up. The agreement could have included a lien clause outlining that the property was collateral for the loan enabling us to claim the property or its proceeds if the loan was not repaid.
   

If we had, in fact, gifted the money, we could have set conditions through a legal document stating that the gift would be returned in full, or part, if the relationship ended.

Gifting money, however, has tax implications, and potential complications if the gift is disputed and the matter goes to a family court.

Pete and I knew we couldn’t turn back the clock, so we engaged a financial adviser, to review our retirement portfolio and recommend adjustments that maximise the earning capacity of our savings.

Our financial adviser also helped us prepare a budget so we could enjoy a reasonable lifestyle on reduced income.

Recently, we heard through friends that Josh was with someone new and a baby was on the way.

Pete reached out to him, explaining how much we missed him and wanted to put this all behind us.

Josh said he felt the same. He talked about his new partner and the impending birth of his baby and seemed very content.

All this grief could have been avoided if Pete and I had simply sought professional advice and had a formal agreement drafted right from the beginning.

These days, I’m confident that we can all move on. In fact, next week Pete and I are going to dinner to meet Josh’s new partner. I feel positive and am looking forward to welcoming our first grandchild into the world.

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