Do Parents Gifts Come With Strings Attached?

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Do Parents Gifts Come With Strings Attached?

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How To Avoid The 10% Penalty On IRA Distributions

November 14, 2015

Imagine this scenario: Mom and Dad get to hear some great news from their son or daughter when they tell them they are getting married. The initial jubilation and excitement from the news is almost overwhelming as Mom and Dad's little baby is now going to really be all grown up. So, Mom and Dad want to help pitch in for the wedding and tell their son or daughter that they will contribute $25,000 toward the wedding. A few weeks later, Mom now gets involved with the initial guest list and becomes adamant about certain relatives that must be included for the wedding. The arguments ensue between Mom and her daughter in this case, and then the daughter begins to wonder was this really a gift from Mom and Dad or did it come with strings attached?

Most parents will say that they want to help their children or grandchildren when they have excess financial resources to do so down the road. However, you'll often see the power struggles that money comes with a dose of control. When it comes to giving money to charity, because it is not a family member there seems to be less of an expectation with control because it is a third party. If financial resources are given to children for buying a new car, taking a family vacation, or for a special event, you'll inevitably hear war stories after about how the parents got way more involved than just making a financial transaction. So, how do you avoid getting a gift from Mom or Dad (or giving one) and have clarity about whether or not strings are attached?

  • Be clear it is a gift and not a loan-

One important point of clarity to establish up front with Mom and Dad (or vice versa) that this is in fact a gift and not a loan. Have a frank discussion that by this being a gift, you have the right to do whatever you want with the funds without any interference from Mom and Dad or otherwise it doesn't make sense to call it a gift. If they want a lot of say on the purchase or planning the event, then maybe they should just pay for it directly themselves.

  • Find the hot button about how feelings would get hurt-

If your Mom and Dad have the idea that a wedding at their country club is the best thing to do and you have the idea about doing a destination wedding, can you see how that could become just a small problem in the wedding process? It's important to get some expectations up front about how your parents see the money being used. The last thing in the world you want is to have family events after you receive the gift where Mom and Dad are talking under their breath about you on the other side of the room.

  • Have a communication plan-

You can kid yourselves that absolutely no interest will come of the money gift after it is given, so the smartest thing to do is to pre plan how you will communicate what you are doing with money. Whether the gift is $2,000 or $20,000, you can be 100% certain that Mom and Dad will still be wondering in the back of their head what is happening with the money. The way to combat this is to get an effective communication plan in place up front.

In the final analysis, it could be entirely possible that we all carry a certain set of expectations when it comes to money we are giving. Can a gift actually be given without a set of strings or does it always come with a violinist attached to it? My feeling is the more clarity you can get from the get go, the smoother the ride will be down the road. For both sides, the right thing to do is to get your expectations open and on the table so there are no hurt feelings down the road.


Additional Reading: How Much Should I Give For A Bar Mitzvah Gift? Should You Gift an Experience Instead?

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Ted Jenkin

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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

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