Author Topic: Handling large gifts from family  (Read 3851 times)

TorontoDeveloper

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Handling large gifts from family
« on: July 19, 2014, 08:06:46 PM »
I'm getting married in a few weeks, and my fianceé's parents wanted to give us a large sum of money to use as a down payment on a house or condo. I don't know what the number would be, but I expect it would be somewhere in the $40k-80k range. Right now our net worth is about $70k.

We live in Toronto, where I believe the real estate market to be highly overvalued. The fianceé and I have discussed things, and we don't wish to buy property right now, for both financial and personal reasons. We thing renting is much cheaper, and we can get a better return investing the saved money. We think real estate in Toronto is overvalued and will likely crash in the next five years. We don't know if we'll be living in Toronto long-term. etc, etc. We spoke about these concerns with the parents, and they said they would be happy as long as the money is invested. We spoke briefly about our index fund investing, and the father-in-law told us stories about how he lost all his money in Nortel. It was a nice conversation.

But I feel a little bit uneasy about accepting the money. I've always heard that money can cause problems in the family. What if the parents think they can use it to control us? What if they get upset when we retire in 10-15 years while they might still be working? I don't think either of these things are particularly likely, but part of me is still worried. I suppose that if either of those things were to happen, we could simply write them a cheque for the amount of money they'd given us, but I'm worried that the relationship would already be damaged at that point.

Am I just being a complainy-pants worrier? This would be a hugely helpful boost to our FI savings.

I'd love to hear advice from anyone who's accepted large gifts of money from a parent or family member.

MBot

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Re: Handling large gifts from family
« Reply #1 on: July 19, 2014, 10:20:27 PM »
Which part of Toronto is it? Some are much more overvalued than others. First, I would run the numbers and see what the costs of owning vs renting are.

If you legitimately have a rent of $625 (we had a one-bed in the basement of a fancy house at Bayvirw/Eglinton for that price a few years ago. Included all utilities!) and your housing costs would jump to $3500 a month, then I wouldn't buy. I'd invest the difference and reach FI faster But if you're already putting in $2800/month for a townhouse in a suburb, perhaps you would see a real advantage from this gift?

As far as the "down-the-road" problems, Do they have any history of being controlling? Even if they give you that $ now and later see you succeed.. Will they think you started this early saving for FI, or will they say "wow, they sure did well and we helped start them out right!"

Goldielocks

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Re: Handling large gifts from family
« Reply #2 on: July 19, 2014, 10:39:10 PM »
I think a large down payment gift would really be a gift.  We received a surprise $10k from my parents after we closed on a property, to pay down principal.  No strings.  It is pretty common.

But, when you do buy as house, you should include them on your second walk through before purchasing, so they feel involved with your life. And be ready to listen to their suggestions.  If you can't do that, don't accept the money.

It is different if it is a loan, or if you asked first.  We borrowed from grandma at a rate between our best MTG rate and the rate she was getting from term deposits.  Formal repayment schedule, all notarized. win win.

The problem was FIL thought he should control the monthly payment transfer to grandma and started to ask us directly for the cheques for him to pass on to her.  Under the guise of everything from his being afraid we would be late paying, to a basic "I'm going to her house on tuesday anyway", " write the cheque now."  He wasn't taking the money for himself or anything, but liked to control people (family) by telling us what to do.  Needless to say we converted to a more expensive bank mortgage within 3 months, just to end the in law nosiness into our finances.

So be prepared for weirdness, but know that down payment money is usually safe from it.
« Last Edit: July 19, 2014, 10:43:15 PM by goldielocks »

Nords

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Re: Handling large gifts from family
« Reply #3 on: July 19, 2014, 11:30:05 PM »
What if the parents think they can use it to control us? What if they get upset when we retire in 10-15 years while they might still be working? I don't think either of these things are particularly likely, but part of me is still worried. I suppose that if either of those things were to happen, we could simply write them a cheque for the amount of money they'd given us, but I'm worried that the relationship would already be damaged at that point.

Am I just being a complainy-pants worrier? This would be a hugely helpful boost to our FI savings.

I'd love to hear advice from anyone who's accepted large gifts of money from a parent or family member.
I had a shipmate who married into a very rich family (8-9 figures) and discovered that he was essentially selected for his breeding potential.  It ended badly (the marriage, not his breeding). 

My spouse was gifted by her parents during the 1990s NASDAQ runup.  She repeatedly said "Thanks, not necessary" and was told that they wanted to treat her and her brother equally.  She was also told that she could do anything she wanted with the money but should keep it safe "just in case".  Perhaps the intent was to give her the assets to help pay for their elder care before the Medicaid lookback period kicked in. 

You may be wondering what asset allocation allows you to "do anything you want with the money" while keeping it "safe just in case".  She got no guidance from her parents other than that, so she elected for T-bills and CDs.

A few years later her parents made some major changes to their lives, subsequently decided that they'd made a mistake, and then had to deal with the suboptimal financial decisions that had accompanied the lifestyle change.  When they elected to buy a condo, they told her "Listen, we need to make a down payment so we'd like you to give our money back."  (That's my emphasis on the word "our".)  Apparently they'd never really given the money away after all-- just transferred it to a new custodian who worked for free.

I did the freakin' bookkeeping on that money for nearly a decade (spouse warned me this might happen), and when she gave it back she had to deal with the "Is that all there is?!?" query from her folks.  Getting rid of that family money felt just like paying off a car loan or student debt.  Spouse has told me that she won't give her parents any more money, but if her parents have long-term care expenses then she'll offer to split the tab with her brother.

You could always ask your prospective parents-in-law for their gift to be in the form of a gift certificate to be redeemed at the suitable time.  But maybe you also want to have a long talk with your spouse about getting out from under her parents.  If it works, please let me know what you did so that my spouse can try it with her parents...

SDREMNGR

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Re: Handling large gifts from family
« Reply #4 on: July 20, 2014, 06:51:24 AM »
Everyone's parents are different but money comes with some sort of expectation usually.  More money, more expectations.

But if you are lucky enough to get it without expectations, and it's not a huge burden for them, then I'd accept thankfully and figure out how you can invest and multiply it.

Trying to figure out how to successfully invest money is one of life's great puzzles and a lifelong hobby that can potentially pay very well - often better than your day job.

begood

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Re: Handling large gifts from family
« Reply #5 on: July 20, 2014, 07:16:49 AM »
My parents gave us $10K in mutual funds as a wedding gift, along with the business card of their Edward D. Jones dude. We didn't keep EDJ, but those funds were the foundation of our investment portfolio, and I'm grateful to them for basically handing us an fully formed financial ecosystem that we just had to water and fertilize.

Now, mutual funds aren't as fraught as a house down payment; nobody ever came to visit our mutual funds. :)

Seņora Savings

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Re: Handling large gifts from family
« Reply #6 on: July 20, 2014, 07:42:49 AM »
I see three places where this could get ugly:

1) They want the money back: I would talk to them about their financial situation to make sure it's stellar before accepting money.

2) Divorce: You and your wife should decide where the money will go if you split before accepting it.  Have this conversation again before buying a house.

3) Extreme Early Retirement (under 50):  if you're considering this, it could upset them to feel like they're paying for it.  Ideally you would talk to them before accepting the money.

I've been given gifts that were truly gifts from my parents.  I don't talk about it much because I'm embarrassed, and I'd imagine others feel similarly.  Some factors that I think make it work are 1) I'm open with them about money and they over saved for retirement, then inherited some.  2) They like my goals; they encouraged me to major in art (I didn't) so they're glad that I'm saving up to become an artist. 3) They've let me do what I want with the money, my mom wanted me to take trips to Europe or something, I've invested it.  If they asked for it back or started making demands I'd give it back, but it would be hard not to be resentful.

TorontoDeveloper

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Re: Handling large gifts from family
« Reply #7 on: July 20, 2014, 08:54:58 AM »
Which part of Toronto is it? Some are much more overvalued than others. First, I would run the numbers and see what the costs of owning vs renting are.

To buy a nearly identical unit in the same building that we're currently in would cost around $310k-$340k. Maintenance fees would be around $410/month. Our rent is $1590/month, but we rent out our parking spot for $140/month. Assuming home prices increase with inflation, renting and investing the difference is better (but not by a huge amount) according to any buy/rent calculator I've run the numbers through. But I think home prices are going to crash somewhat in the not-too-distant future. And we plan to have 2-4 children in 5-10 years, which will require a larger space than what we have now. Buying now simply doesn't make sense to us. Buying in 5-10 years very well might.

As far as the "down-the-road" problems, Do they have any history of being controlling? Even if they give you that $ now and later see you succeed.. Will they think you started this early saving for FI, or will they say "wow, they sure did well and we helped start them out right!"

My soon to be in-laws moved to Canada to create a better life for their children. They say they view this financial head-start as a part of that. I think they would be happy to see us succeed.

But, when you do buy as house, you should include them on your second walk through before purchasing, so they feel involved with your life. And be ready to listen to their suggestions.  If you can't do that, don't accept the money.

We would be willing to do that. My father-in-law has a few rental properties, so I would love to get his advice and opinion on any place we are looking to buy. Thanks for sharing your experience, it helps us feel better!

My spouse was gifted by her parents during the 1990s NASDAQ runup.  She repeatedly said "Thanks, not necessary" and was told that they wanted to treat her and her brother equally.  She was also told that she could do anything she wanted with the money but should keep it safe "just in case".  Perhaps the intent was to give her the assets to help pay for their elder care before the Medicaid lookback period kicked in. 

You may be wondering what asset allocation allows you to "do anything you want with the money" while keeping it "safe just in case".  She got no guidance from her parents other than that, so she elected for T-bills and CDs.

A few years later her parents made some major changes to their lives, subsequently decided that they'd made a mistake, and then had to deal with the suboptimal financial decisions that had accompanied the lifestyle change.  When they elected to buy a condo, they told her "Listen, we need to make a down payment so we'd like you to give our money back."  (That's my emphasis on the word "our".)  Apparently they'd never really given the money away after all-- just transferred it to a new custodian who worked for free.

I did the freakin' bookkeeping on that money for nearly a decade (spouse warned me this might happen), and when she gave it back she had to deal with the "Is that all there is?!?" query from her folks.  Getting rid of that family money felt just like paying off a car loan or student debt.  Spouse has told me that she won't give her parents any more money, but if her parents have long-term care expenses then she'll offer to split the tab with her brother.

You could always ask your prospective parents-in-law for their gift to be in the form of a gift certificate to be redeemed at the suitable time.  But maybe you also want to have a long talk with your spouse about getting out from under her parents.  If it works, please let me know what you did so that my spouse can try it with her parents...

Thanks for sharing, Nords. I suppose this is what I'm worried about - being asked for the money back later. I'm thinking that before we accept the money, we would speak to the parents and share what we would do with it, asking for their input. eg "Since this is intended to be a downpayment, we were thinking of investing in a GIC at X bank at Y%. Do you have any advice?" I would want things to be very clear.

My spouse is independent of her parents, but comes from a culture where parents often give their kids help of some kind when they get married. She's very appreciative, but feels a little bit uncomfortable/embarrassed accepting help, as do I. :)

I see three places where this could get ugly:

1) They want the money back: I would talk to them about their financial situation to make sure it's stellar before accepting money.

2) Divorce: You and your wife should decide where the money will go if you split before accepting it.  Have this conversation again before buying a house.

3) Extreme Early Retirement (under 50):  if you're considering this, it could upset them to feel like they're paying for it.  Ideally you would talk to them before accepting the money.

I've been given gifts that were truly gifts from my parents.  I don't talk about it much because I'm embarrassed, and I'd imagine others feel similarly.  Some factors that I think make it work are 1) I'm open with them about money and they over saved for retirement, then inherited some.  2) They like my goals; they encouraged me to major in art (I didn't) so they're glad that I'm saving up to become an artist. 3) They've let me do what I want with the money, my mom wanted me to take trips to Europe or something, I've invested it.  If they asked for it back or started making demands I'd give it back, but it would be hard not to be resentful.

Thank you for the advice! I've definitely been mulling over sharing our plans for early FI. This is not something we've really shared with anyone yet (besides probing the waters with some friends), but I don't want feeling to get hurt down the line. Having a good relationship with our parents is very important to both of us.



At this point I'm thinking of very clearly laying down some expectations, and asking for their input. Something like this: "We don't plan on buying right now, but are very grateful for the generous gift. Since this money is intended for a down-payment, we intend to invest it in {safe, low-yielding investment} at {x}%. We'd love your advice if you have another suggestion. If you change your mind and would like the money back before we buy a house, you're welcome to it + all the gains. When we are looking to buy a house, we'll let you know and would love your advice as we make our decision." Something like that.

socaso

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Re: Handling large gifts from family
« Reply #8 on: July 20, 2014, 10:24:18 AM »
If you really think it's a no strings attached gift then just add the money to your investments. If you think there is any remote possibility there might be strings and you feel strongly that you won't be buying a house in the next few years then take the money, put it in a separate investment account and leave it the hell alone. If they ever mention that gift in a negative or controlling way then you can give them the principal back and keep the interest.

I think financial gifts are not uncommon. My parents have given us very generous sums of money on a few occasions and they always stress that we can use it however we want, no strings attached. I usually tell them what it went towards anyway because it is usually various investment accounts and I know that makes them happy.

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Re: Handling large gifts from family
« Reply #9 on: July 20, 2014, 10:30:00 AM »
It can totally go wither way. How well do you know the parents? How do they typically act when they give you things? Have they held other things over you before?

I have some very good friends who felt very controlled by their parents' gift, which they used as a down payment. They felt that the parents had input on just about every aspect of the gift; everything from selecting the 'right' house, to being 'reminded' of the gift on a constant basis. On some levels, they felt they were being held hostage by the gift.

On the other hand, we are about to accept a similar gift from one of our parents. These parents are very generous, and I don't feel any indication that they will ever seek to control us with the gift. Quite simply, it's a gift to help us purchase a house and get on with our new life as a married couple. I've very grateful for the money, but it is ours to do what we wish.

Trust your gut, and best of luck!

KS

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Re: Handling large gifts from family
« Reply #10 on: July 20, 2014, 10:34:43 AM »
Wow, I knew I was lucky with my family and in-laws, but didn't realize how much in the minority that might be until I saw all the cautious responses on here... I'd just like to chime in with the possibility that they really could be just giving you a gift, and don't intend any strings to be attached. Of course, it is good to make sure you understand if there are any expectations you'd be uncomfortable with before accepting it but so far from what you've said it sounds like they are pretty reasonable and just want to help you guys get a head start in life. My parents did something similar when we got married. In our case they said "here's how much we are gifting you for your wedding" with the only stated expectation that we would not spend all of it on the wedding, and a lot of it would be saved towards down payment and/or other life goals. It was very generous of them, we thanked them profusely, and that was that. They have never mentioned what we should be doing with it since then.

My in-laws have also been quite generous over the years, after they did their retirement math and I guess decided they over-saved. They view it as giving us our inheritance while they're still around to see us make use of it. It does make us a little uncomfortable accepting such generous gifts when they do it, but there have never been any strings attached and I don't believe there ever will be. Again we thank them profusely, and that's the last we hear of it. (That said, my husband and I have talked about it and part of our money planning involves being prepared to help out either set of parents in the unlikely event they ever do need it, since they have done so much to help get us to where we are now. But that comes from us not the parents.)

So, anyway, just wanted to provide an example of a situation where things work out fine!

Catbert

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Re: Handling large gifts from family
« Reply #11 on: July 20, 2014, 01:22:23 PM »
Well in a couple of weeks you'll have been through a wedding with the soon-to-be-in-laws.  That's give you a good idea if you don't have one already of how interfering they are.   If they've been controlling and pouty when they don't get their way on the wedding then I would pass on the money.  If they've proven to be reasonable people under what can be stressful circumstances then take the money subject to the cautions others have outlined.