The current economic downturn affects everyone, and some adult family members who have long supported themselves and their families may suddenly need help. Yet they may not want to—or know how to—ask for assistance.
This is tricky territory, because putting money between you and a loved one can have lasting repercussions on the relationship. Done right, there are ways to assist family members who are hurting—or at least to let them know you are available to help if they need you.
Offer Help, But Don’t Push
Ask if a family member needs help, but do it in a way that feels natural to your relationship. While it may not be a secret, offering help in a crowd is never a good idea, so try to keep it discreet. Consider bringing the subject up indirectly, for example, by mentioning that you read a news story on how common financial troubles are right now.
If your family member says no to your offer of help, don’t be offended, but let them know that the offer stands. In some cases, the offer alone will ease some of the emotional burden they may be feeling.
Make a Loan and Document the Terms
If you know that your family member won’t accept a cash gift, position your help as a short- or long-term loan, complete with a written agreement and clear terms. Think about how credit agreements are structured—with interest rates, timelines for payment and even collateral that the lender keeps should the loan go unpaid—and do the same for your loan.
Be sure to charge an IRS-approved minimum interest rate (also known as the applicable federal rate) to avoid any unexpected tax consequences for you or the borrower. As the lender, you should report the interest as taxable income, and the borrowing family member may be able to deduct the interest expense depending on how they use the proceeds. Also consider the possibility, before you lend, that your family member member will not be able to repay the debt and ask yourself how you will feel—and how it will impact your relationship—if that happens.
Give a Cash Gift—Or Something Else
Cash may be king, but some family members may not feel comfortable accepting currency outright. If you have enough to help someone who is struggling, consider alternatives to cash, such as gift cards to restaurants, clothing stores, home goods outlets or online retailers. Ask if you can take care of the mortgage payment for one month or pay another monthly bill. Consider hiring a service provider, such as a house cleaner, landscaper or handyman, to take care of needs that a family member in hardship may not have the disposable income for right now.
Hire Them
One way to help a financially strapped family member without their feeling like they’re accepting a handout is to hire them to do some work for you. Depending on their skills, they can get paid for tasks such as personal assistance, errand running, handyman projects, painting or yard work. Let them know they’ll be helping you out by taking on the work and make sure the terms are spelled out up front—what you expect from them and how much you will pay for their time.
Front-Load Inheritance
If you are planning to leave a family member assets, consider giving them a portion during a time of crisis. Individuals can gift up to $15,000 annually, or $30,000 for couples, to anyone without incurring taxes. If your family member needs more than that, you can use some of your $11.58 million lifetime federal gift tax exemption. Uncle Sam also allows you to pay for certain educational or medical expenses outright without incurring a gift tax. For example, if your adult child is unable to pay a grandchild’s tuition, you can pay that directly, tax-free.
Help Them Find Alternative Assistance
If your family member won’t accept financial help from you right now, there are many other ways you can help them to help themselves. For example, find a debt counselor who can offer strategies for debt repayment and solutions for managing their money. Some will even help get interest rates or monthly payments reduced.
If your loved one has been laid off as a result of the downturn and they aren’t sure what to do next, offer to connect them with a career counselor who can evaluate their education, training and skills and help them zero in on possible new paths. If your family member wants to take out a loan or line of credit but does not have a good enough credit rating to qualify, you can offer to cosign with them. Make sure to speak with the lender yourself and read all documentation as cosigning will make you responsible for repayment in the event the primary borrower can’t make good, and it could affect your credit rating and ability to borrow funds down the road.
Remember to Keep Your Nest Egg Intact
You don’t want to provide help now if it means being financially dependent on others later on. As a general guideline, offer assistance only if you have more than six months of living expenses saved and your retirement account is on track to being fully funded. Talk to a financial advisor if you want help reviewing your budget and financial goals to see how a gift to a family member in need might impact your plans.
C.J. Prince is a freelance writer who covers finance, business strategy and leadership. Her work has been published in Working Mother, Entrepreneur and New Jersey Monthly Magazine, as well as many financial websites and magazines.
READ MORE: 4 Financial Literacy Games to Make Saving Fun for Your Family
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