Giving With a Warm Hand

Have you ever heard the phrase ‘giving with a warm hand versus a cold hand?’

This is a concept that comes up regularly as we discuss financial and estate planning with our clients. It refers to the idea of parents or grandparents transferring some portion of wealth during their lifetime instead of holding onto the assets and eventually transferring them through their estate.

It might look like paying for a family vacation to create memories or to provide seed capital as your child enthusiastically purses a business opportunity, or you recognize the value of education and want to support a future career, or you might want to help them with a down payment on a home, so they don’t need to rent.

Generally speaking. At Covenant, we support this strategy, but how do we do it well?

First, I encourage clients to consider their motivation when giving monetary gifts to adult children.

What are a few good and noble motivations?

• Perhaps it’s simply a desire to share what you’ve been blessed with – it gives you joy to see your resources benefit someone you love. 

• Perhaps the parents’ objective is to relieve a financial burden that a child is experiencing due to circumstances out of their control, such as a prolonged illness that limits their ability to earn income.

• Another healthy and strategic motivation is that parents may view a large financial gift as a dress rehearsal of sorts; perhaps there is a lot more to be given through your estate. Giving some now allows you to observe how it affects your child’s work habits, marriage, and lifestyle.

• If the money is not being stewarded wisely, it could provide an opportunity for additional instruction. 

As we consider giving with a warm hand, what are motivations and scenarios that may not be productive?

Well, have you ever found yourself making the following comment?

‘ I want my kids to have it easier than I did.’ 

• Is that a good enough reason on its own?  Maybe you are the wise and resilient person you are today precisely because it wasn’t easy. You had to work hard for what you have and probably had to learn some tough lessons along the way. It’s Okay for your kids to struggle as well.
  

Or what about this comment?

‘I want to make sure they can maintain the lifestyle they are used to.’

• If your child is young and married, early in their working career, is it so bad if they live on some macaroni and cheese? That they need to learn to budget and have limits on their spending? Of course not. As a parent, don’t rob your young adult of that part of their journey. 

When it comes to helping your kids, avoid offering financial assistance if you are feeling manipulated to do so. Occasionally, parents feel like they need to buy their kids’ love with money. Be careful, as the amount you give may never be enough.

And parents, you should also avoid giving if you are the one doing the manipulating. Occasionally, we see ‘gifts’ to children with strings attached as a way of controlling them or exercising power. Looking over their shoulders or demanding a detailed accounting of how it was spent is bound to lead to resentment and the breakdown of relationships. Instead, allow them to make decisions even if they differ from what you might have done with that money.

Here are a few more guidelines to consider when looking to ‘give money with a warm hand.’

• It’s important that your kids know that your wealth, whatever level it is, did not come easy and that it’s from years of hard work and good decision-making.  
• Further, as a parent, you should feel free to provide assistance as you see fit, which may result in varying levels amongst your children. Every child’s circumstances are unique, and how you assist them will likely differ to some degree. You want to be fair to your kids, but it might not always look exactly equal.
• Now that said, I encourage parents to have a way of tracking how they have helped each of their children. Not so they can maintain equality to the last penny, but more for their own peace of mind. They may desire to make things somewhat equitable, or they may not. But at least they have some record of what they’ve done for each child.
• For larger amounts of money going to a married child, consider establishing it as an interest-free loan instead of a gift. That way, if there is a marriage breakdown in the future, you maintain the option of calling the loan and prevent that money from being part of the marital assets being split.
• One last comment, and a very important one: skin in the game. If a parent provides financial assistance to a child to give them a ‘hand up,’ I encourage them to expect the child to participate somehow as well. Want help with a downpayment for a home? Sure, what do you have saved up yourself? Want help with a university education? Great, do you have a summer job to pay for some of it?  I find this approach provides a level of accountability and gives the adult child a sense of accomplishment and dignity that they paid the price, too.

Is it a good idea to provide financial assistance with a warm hand to your adult children? Under the right circumstances, with the right motivations, absolutely.

If you want to explore this topic further, please contact me at mark @ covenant.ca.