How to mix family and money
- From: National Features
- July 23, 2013
Money is one of the biggest reasons for family fights and grudges, often leading to long-term breakdowns and years of bad feeling.
When it comes to family money issues, what starts as a good intention can create feuds that carry through generations.
Even seemingly small amounts can trigger heated disputes. But there are ways to lend money, divide assets and give someone a helping hand without creating a family war.
> LENDING MONEY
"Often family lending is based on helping out, so the lender is reluctant or lacks the skills to put terms around a loan," Westpac senior financial adviser Glenn Calder says.
"This compares with an independent lender who bases decisions on the ability to repay and an assessment of risk."
Some common problems with lending include:
* Family loan payments can become a lower priority than others. This leaves family members in the position of having to enforce a payment.
* If interest is charged, the rate is often ill-defined and over time the reference can change. For example, not long ago an interest rate of 5 per cent would have been generously low, but now some lenders charge less.
* If there is no written agreement, then there is no ability to make a claim for repayment. This can be vital in situations such as a marriage breakdown, legal action against the borrower or bankruptcy.
* No interest rates for loans can also cause problems between family members.
> HELPING HAND
"Fair" and "even" are not the same thing when it comes to giving family members a helping hand, Relationships Australia operations director Lynn Fletcher says.
"Money isn't love. You can't buy affection but sometimes people see it as meaning that the person didn't love them as much as someone else," Fletcher says.
"Everything must always be about understanding the circumstances of each person.
"However, people also need to be encouraged to be honest about why it seems unfair."
Disputes can also arise from offers of assistance that saves someone money but does not involve a loan.
Unpaid child care, school pick-ups, housework, cooking meals or providing transport for one family member and not another can often create a grudge within the family.
While one member receives these services for free, others have to pay for them or struggle without help.
> HOUSING ASSISTANCE
Home deposits, discounted rent or mortgage repayments are common areas where family look to each other for help.
Resi Mortgage chief executive Lisa Montgomery says what might at first seem a natural thing to do can often end up being a problem.
"In some cases, it can cause serious relationship issues within families," she says.
"Parents who gift or lend money to their children for a home purchase must also consider what will happen if they require the funds themselves. The same can be said for family members buying property together.
"This is not to say that parents and family members shouldn't engage in financial transactions - in many cases they work well - however, to avoid conflict every aspect of the transaction needs to be considered and documented."
> DIVIDING ASSETS
Disputes about wills and gifts can easily end up in court and tie up assets for many years, Calder warns.
"Generally parents will look to how they fairly treat beneficiaries - fairly, rather than equally, being the operative word," he says.
Two issues to consider are:
* What assets are involved.
* What are the individual needs, skills and circumstances of each beneficiary.
"If assets are all liquid and the needs of each beneficiary are the same, then the division may be easy. This is rare, however," Calder says.
"Fights between family members generally occur when one feels aggrieved that others have received an unequal or unfair division.
"Documenting this is the best way to overcome objections."
Unequal bequeaths could involve a trust arrangement or certain conditions for someone who is not financially savvy, one person being in need of greater care, another who has more children and higher living costs or for future tax implications.
> HOW TO RULE FROM THE GRAVE
Ways to avoid costly challenges to your will:
* Plan and carefully document your intentions.
* Write a letter explaining the rationale for decisions.
* Explaining your reasons can make it harder for a will to be challenged.
* Make sure your explanation shows that you have carefully considered everyone.
* Ensure you explain in detail why you are including or excluding someone.
* Adjust your will or explain why you have or have not taken in to account earlier gifts or arrangements
* Disputes often arise because intentions are not made clear. A letter of final wishes will help avoid this.
Source: BDO Australia