On this episode of THE FINANCIAL COMMUTE, host Chris Galeski welcomes Wealth Planner Brian Standing. They discuss potential complications that may arise when a parent or grandparent helps their child buy real estate.

Firstly, it is critical to decide if the financial assistance offered is considered a gift or a loan. Gifts may be subject to gift taxes, and there may be income tax consequences for loans. Furthermore, it is important to ensure your child is financially stable enough to maintain their property and pay property taxes after they become a homeowner. If you are helping with a partial down payment, your child still needs to be able to qualify for their own loan so they can be on the title. 

Another area of potential complexity is when a child’s partner is involved, as a parent or grandparent may want to ensure that their contribution is protected. Prenuptial or postnuptial agreements can be made to specify how the property will be treated in the event of a divorce. 

Other issues to consider are changing life circumstances (your child may not stay in the same area for the rest of their life) and equalization among heirs to establish fairness.  

Brian and Chris agree it is always important to have conversations with your family and wealth advisor about these intricacies before gifting or loaning a substantial amount of money to another family member. 

Disclosure: Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your financial, legal, and tax professionals before implementing any transactions and/or strategies concerning your finances.