Well I’ve discussed borrowing money from family in times of need, boomeranging home, and finances for a young couple starting out. But the next logical step for many is accepting a down payment for a home or even having your parents pay for your wedding. Should you do it? Should you accept a potentially large gift from your parents? An article in the NY Times addresses this directly.
I know many people whose parents paid $20k+ for a wedding and gave them a 20% down payment for a home, ranging from $50-100k. These are extremely generous gifts and these people were phenomenally fortunate. In make love, not debt they were fortunate to get a $50k gift from a relative to pay off their student loans. So should you take the money?
I think yes. As long as you are certain your parents or family member can afford to do so. I think that’s the only major caveat. But it’s a big one. Are you sure your parent and family has enough to retire on and you won’t have to turn around and help them?
Recall everyone says there are no loans for retirement, so don’t pay for college, there are always student loans. I think the same thing applies here. If you are fortunate enough to get $100k down payment or $50k to pay off debt, take it. BUT not at the expense of your parents.
My roomie will get a paid for wedding and a house DP of at least $100k. But his parents can afford it. He doesn’t mean to expect it but it will happen. Should he really turn it down? No. BUT if his parents were struggling, I know he’d say no thanks. He doesn’t need the money but it sure is a nice gift.
I guess that’s the other caveat. DON’T expect the money. That way you aren’t disappointed if it doesn’t happen. A lot of circumstances can change. Maybe your parents lose their jobs, maybe they lost a lot in the recent downturn of the market and are unable to give you anything. If that’s the case, don’t expect the gift, but appreciate it if it comes through.
What are your thoughts? Should 20-30 somethings take such a generous gifts?
9 responses so far ↓
1 dogatemyfinances // Nov 13, 2008 at 9:51 am
As I stand here at the beginning of a long savings process for a down payment, I am very jealous. Safe to say that isn’t going to happen for me.
But if your parents offer you the money (and assuming it doesn’t come with a bunch of strings) you have to take it. I guess I could argue the discipline of saving for a DP is valuable, but not THAT valuable. I’d take it.
2 Bruce // Nov 15, 2008 at 9:17 am
Also the gift givers may end up giving more than what you get because the IRS likes to tax large gifts.
The recipient gets the income tax free the giver is another story if the amount is over the limit.
3 fengshui // Nov 15, 2008 at 12:31 pm
I have always wondered how all of these people’s parents can afford to just whip up $100k for each of their children to have a home, a wedding, and a honeymoon, not to mention their parents probably already paid for all of their college tuition. I wonder, where does all of this money come from, considering that the “average” national family income is around $47k. So, either most people are not fully funding their retirements or only “rich” people do this. But if only “rich” people do this, and about 4% of US residents are “rich”, it seems like a heck of a lot more than about 4%. It is puzzling…… Or, perhaps my definition of “rich” isn’t the norm, and people think that $200k for retirment is enough and that they can give their kids the other $100k? I don’t know. And, I also think that it is extravagant to give kids this much. Fully funded college, fully paid wedding, 20% down payment? What do the kids have to work for? They don’t learn how to struggle, skrimp, have a budget, and SAVE……. ?????? Or perhaps I’m just disillusioned because I never had any of these things?
4 LivingAlmostLarge // Nov 16, 2008 at 8:35 pm
Bruce, I know many parents just give their kids money without worrying about the taxes. They just deposit it into a joint account, etc.
Fengshui, these are people who have made a lot of money.
My roomie is a clearcut example. His parents will give him wedding, DP, etc. And he told me today, his brother was allowed to sit at home for 3 years WITHOUT working or paying a penny in rent, food, utilities. HIS parents allowed it.
They would never CUT him off or turn him out for not working! Yep. 3 years! And my roomie had to admit if his parents weren’t well off it would not be the same situation.
So affording $100k is not hard when your kids are living off of your anyway.
5 Meg // Nov 17, 2008 at 3:39 pm
I think almost everybody I know will have or has had their parents pay for their wedding. Of course not all those weddings are $50K affairs - some are surely less than $10K. But in my experience most parents try to pay for their kids’ weddings (of course I live in the South, so it may be partly cultural).
As for home downpayments, that is more rare; I only know a few (very rich) people who have been given that gift.
Although you have to remember that some of these funds might already belong to the kids. Wealthy grandparents and/or parents often set up trusts for their offspring early for estate planning purposes. A married couple can give each kid or grandkid $24K a year ($26K next year) with no gift or estate tax implications. So it’s not so much that the kids are being given cars and weddings and tuitions and downpayments - it’s that the kids get to use the benefit of future inheritances now, while they are still young. Which is indeed a very fortunate thing.
6 LAL // Nov 17, 2008 at 6:56 pm
Definitely it could be an early inheritance. But realize only people with sufficient funds can afford to do it.
I think that there are many people who can afford to do it without jeopardizing their own futures.
7 Him // Dec 6, 2008 at 7:55 pm
Many people don’t really understand the tax implications of giving a gift. Even if a couple does decide to give over $26K to someone, they still aren’t taxed until the amount over $26K amounts to ~$1 million over a lifetime. I did some research about the topic a little while back.
When we were notified that a friend of the family wanted to give us a gift, it was a total surprise. We did think about all of the implications, and whether we even wanted to accept it. In the end, the relative really did want to help out, and we could benefit also. Everyone wins, right?
8 fengshui // Dec 7, 2008 at 2:08 am
Everyone wins, right?
Sounds good to me! Although I’m not one of the lucky ones who has wealthy family members. I’ll never have money “given” to me by anyone. The only chunk of $ I’ve ever had was when I represented myself “pro se” in a court case and won $10k, and of course I had to pay a lot of taxes on it…..
Money Hacks Carnival #39 : Moolanomy - Dec 26, 2008
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