WHEN IS A GIFT NOT A GIFT?

Children! Can’t live with them. Can’t get away from them. But they can still hit you up for money, can’t they? One of the most contentious issues within families today is the use or abuse of parents’ money by their own children. How can a parent resist a child’s request for money? The Greatest Generation is being tapped for money all day, every day, by their own children and grandchildren. And why? The answer is simple: Because they have it!

Our elderly population controls a lot of this nation’s wealth. And how did that happen? Well, they got up every morning before the sun rose in the eastern sky, and they worked their butts off. Then, when payday rolled around, they didn’t have massive credit card bills. Nor did they use the payday loan companies with their 20% and 30% interest rates. No, they put some of their money in the bank every pay. And they bought those old-fashioned savings bonds. And they saved and saved. And they did without once in awhile. It used to be called “living within your means.” How old-fashioned is that?

I see the proof of it every day. Senior citizens come into my office and tell me that they have savings accounts and certificates of deposit at the bank, that they live in homes that are paid off, and that they got their children educated, married and launched in life. But then those same children start coming back home either to live off the parents or to borrow money from their parents to enable them to live on their own. What happened to working for the money? Well, when the Olde Bank of Mom or Dad is open twenty-four/seven, why work?

What are we really talking about? Well, today’s topic is the difference between a loan and a gift. Since parents and children are going to keep doing this money thing forever, we might as well establish the ground rules: A loan is money that is supposed to be paid back. A gift is not.

So what is the problem here? Well, think about it for awhile. Daughter leaves her husband and comes home to Momma. Momma lives alone in a house that is too big for her, and she enjoys daughter’s company. Daughter either works or does not work, but she helps out around the house, cleans up, does some grocery shopping (with Momma’s money, of course) and drives Momma to the doctor’s office. Momma says to herself, “With my daughter here, I may be able to stay at home forever and not have to go to the nursing home.”

Should daughter pay rent, or is Momma “gifting” daughter the value of the rent to help her get along? Or is daughter promising Momma that when she gets her divorce settlement and some support she will repay Momma, which sounds like a “loan?”

Son gets laid off and asks his folks to help him get started in a business. All he needs is a few tools and a truck, and he can carve out a living. Mom and Dad provide the start-up money to get him going. When do they discuss the idea of getting that money back? Is it assumed? Then what happens when the parents die and another of the children is named as executor of the estate? Do they have to approach their brother and demand the money be paid back? Or worse yet, sue him for it?

In the recent Allegheny County case of In re Witt Estate, the Court decided that the close relationship between parent and child creates the presumption that a conveyance (of money from parent to child) was intended as a gift, absent words of explanation at the time of the conveyance. In this case, a father transferred $150,000 to his son, which the son used to start a business. Nothing was said at the time about whether this was a gift or a loan. After the father died, the other son, who was the executor, sued his brother for the return of the money to the estate. Apparently there was some mention of the deal in the father’s will which lead the executor to think that the father intended that the money be repaid.

The Court initially ruled that the money had to be paid back, then reversed itself and ruled that the money was a gift and did not have to be paid back. There were many large and small issues raised in the case, and it was clear that the judge who decided the case was tortured by his initial ruling. It is rare that a judge will reverse his own decision, but that is what happened here. The possibility of an appeal to a higher court is likely, and there may be more to this story in the future.

In the meantime, however, if you are behind the desk at the Olde Bank of Mom and Dad, make sure you understand the terms of any financial transaction with your children, and make sure that those terms are clearly laid out in writing. Something as simple as an “IOU” signed by the child and dated can save years of strife and a family breakup down the road. And if it is a gift, consider making a similar gift to each child at the same time. In family matters such as these, the advice and counsel of an Elder Law attorney can keep the peace after you are gone.

Chris Abernethy is an Elder Law attorney in the North Hills, and concentrates his practice in estate planning, probate, wills, trusts, powers of attorney, living wills and real estate. He is a member of the National Association of Elder Law Attorneys and a charter member of the AARP Legal Services Network.