The single-minded focus to secure the child’s future means that the funds for their own retirement go towards the kid’s foreign education; the medical buffer to be used in old age is depleted by a destination wedding. Sometimes the financial support continues well into adulthood, with a comfortable retired life put on hold to fund the adult child’s startup, or travel plans shelved to help him buy a house. In fact, a 2018 American survey by Merrill Lynch and Age Wave revealed that parents spent twice as much on adult kids as they did on their own retirement. In India, the figures are likely to be much higher. “It is important for parents to realise that they should live their lives on their own terms, not driven by kids’ needs,” says Mrin Agarwal, Founder Director, Finsafe.
Somewhere during the child’s physical progression from toddler to teenager and adulthood, the emotional weft starts to wear thin due to the increase in financial strain. The financial instruments intended to bind the child to parent serve to sever the ties. It could be a joint loan taken by the parent and child that the latter refuses to repay, or the financial dependence of a divorced child, or the increased medical expenses of a parent being borne by the child.
These and many other fissures in the parentchild relationship have their roots not only in the financial upbringing of the child but also in the parents’ monetary habits. If you haven’t taught the child how to manage money in his formative years, or have failed to make him financially independent as an adult, or even been careless with your own money habits, it will have a bearing on the ties between you and your child.
In the following pages, we will help you identify some of these financial stress points in your relationship with adult children, and tell you how to handle these.
1. SHOULD YOU OFFER FINANCIAL HELP TO ADULT KIDS?
Don’t, if the pestering is on a regular basis and depletes your retirement funds.
If you act as a financial crutch for your adult child, you could jeopardise your own goals, but what about situations where the child genuinely requires help? “Remember, that as you approach retirement, you can’t take a loan. So protect yourself before helping the adult child,” says Priya Sunder, Director, PeakAlpha Investments. Here’s how to decide whether you should offer help to your adult child.
How often does he seek financial help?
However harsh it may sound, do not help an adult child if it is only one in a long and frequent series of demands. More so, if the financial need springs from his refusal to shoulder financial responsibility or hold a steady job. If, on the other hand, this is a rare instance where he is facing a genuine crisis, you could offer money but on the condition that it is returned within a specified time.
Will it erode your retirement corpus?
If you are forced to dip into your savings to offer help, don’t do so, especially if it is to fund a child’s startup or business venture. Instead, the child can monetise his assets by taking a loan against securities, insurance or gold; sell his personal assets; use credit card to meet an emergency; or as a last resort, take a personal loan. He will have enough time to shore up his depleted resources, but you may not.
Is it for an emergency or to buy assets?
While parents would willingly empty out their coffers for their adult children in case of a medical emergency, it is better that the child buy adequate health insurance. If he doesn’t have one, parents should monetise their assets first. However, if the money is for acquiring a house or a car, offer it only as a loan with joint ownership and clear terms of repayment.
Is the child divorced or widowed?
If your child has lost a spouse or has separated, offer financial support by all means. Remember, however, that the help should be time bound and the child should find a job to support himself or herself eventually.
Is the money being given as a loan?
Except for medical emergencies, all funds offered to an adult offspring should be in the form of loans. If you have educated the child to earn his own living, he should be able to meet his own financial challenges. Make sure that you draft a legal agreement, including the purpose of loan, exact amount being offered, interest rate, time frame for repayment, and options in case of defaults. Both the parties should have a copy of the agreement and it should be framed with the help of a lawyer.
Are other siblings aware of it?
If you are helping one child, it is a good idea to keep the other children in the know to avoid disputes over inheritance. Also include the loan details in your will, so that if you die before the money is repaid, the amount can be deducted from the child’s inheritance.
2. SHOULD YOU BUY A HOUSE JOINTLY WITH CHILDREN?
No, it will create problems for both you and the kids.
“No, I’m not at all in favour of such an arrangement,” says Sunder emphatically. The reason is that it can create untenable situations and financial complications for both parents and adult children, leading to fissures and snapping of familial bonds.
Co-applicant & co-owner
The decision to buy property jointly with parents is often at the behest of adult children. Keen to buy their own house at the start of their working lives, the kids face many limitations: they may not have enough money for the down payment, or don’t have a large enough income to take on the home loan EMI, or are looking for a bigger loan to buy a bigger house. All these limitations are easily overcome by joining hands with retired parents, who typically have some form of accessible corpus. So they not only sign on as a co-applicant for the home loan, but to safeguard their interests, also become co-owners of the property. Most of the problems that both children and parents face stem from this arrangement.
Problems for parents
“The fact that the parent has signed on as a co-applicant for the loan means that the liability for repayment rests with him as well,” says Sunder. So, if at some point, the child backs off and refuses to pay, or is unable to do so due to loss of job, the parents will be forced to shoulder the entire financial responsibility. Without a steady income in retirement and with rising medical expenses, this could become a burden for the parents unless they have an asset that they can monetise or liquidate.
Complications for adult children
For an adult child, the problems can be three-fold. One, if both the parent and child take on 50% share of the loan, and the parent dies midway through the loan term, the child will be left to make the entire repayment and may be unable to furnish the large EMIs. Two, if the parent dies intestate, the parent’s share will go to all the Class I legal heirs, as per the Hindu Succession Act, 1956. This means that even though the child has paid for almost the entire property by repaying the remaining loan, he will be deprived of full ownership as the parent’s share will also go to his siblings and the other parent.
Three, if differences crop up between the parent and child after his marriage, and one party wants to sell the property, it will be difficult to do so without the other’s cooperation. The parent could also will his portion of the property to another sibling, who has made no financial contribution in the purchase.
What should you do?
The best course of action for adult children wanting to buy a house is to either wait till they have a sufficiently large corpus to make the down payment or a high enough income to be able to pay the EMIs. “Parents should not consent to buying a house jointly and if at all they want to provide financial help, it can be done by providing cash to the adult child,” says Sunder.
Also read:
How financial training in childhood impacts money behaviour of adults
3. SHOULD YOU PAY FOR THE CHILD’S WEDDING OR FOREIGN EDUCATION?
Fund it partially. Let kids shoulder the responsibility.
Till a few decades ago, this question would not have crossed an Indian parent’s mind. Of course, one paid for the child’s education and wedding, whatever it took. The only difference lay in the choice of institute or scale of wedding. It was a subjective and personal choice depending on one’s financial ability. However, in the altered financial scape, where the parents’ pensions have dwindled and children’s earning capacities have gone up, the question doesn’t seem out of place.
Don’t risk your retirement
Parents need to realise that they are not bound to fund the child’s marriage, especially if their own financial condition is fragile. If they haven’t secured their retirement and the child is doing well in his career, the latter can easily take the responsibility for the goal. Similarly, they should not trip on guilt for failing to sponsor a child’s foreign education. Taking a loan on child’s behalf or mortgaging their only property may put them at risk, especially if the child fails to pay the loan or secure the property.
Child can take a loan
If the child is employed and is falling short of the corpus needed for the wedding, he can easily take a loan, though it is a better idea to plan for the goal as soon as he starts working. “Remember that the child can take a loan for his higher education or wedding, but the parent can’t take loans for their retirement and have no repaying ability unless they attach an asset as a collateral,” says Sunder. However, loans should be taken only as a last resort because of exorbitant interest rates.
Contribute in other ways
Parents can help with the wedding arrangements, including planning, bookings and shopping, among other things. They can also contribute to the finances partially by taking charge of the celebrations for one function or buying jewellery.
4. SHOULD YOU DEPEND ON
CHILDREN FOR YOUR MEDICAL NEEDS?
Ideally no, but being included in their employer’s cover is a good idea.
A few years before you are set to quit work, it’s a good idea to assess your health status and insurance needs. “Medical expenses comprise one of the biggest outflows for senior citizens and can be a gamechanger, impacting both the parents and their adult children,” says Sunder. So, it is important for parents to be financially prepared not only because of the surging health-care costs and steep annual medical inflation of 15-20%, but more importantly, to avoid being dependent on your adult children.
Talk to children
Sit down with your children a couple of years before retirement and discuss your medical condition, the size of your health insurance, if any, and the provisions that you have made for a medical buffer or an emergency corpus. Convey to the adult kids the expenditure that you are likely to incur after retirement, the details of the TPA, the size of your insurance and related documents, as well as the ways they can access your medical corpus, when you need it. This is important because the children should be prepared for any medical eventuality you face, and this could include bridging a shortfall.
Employer’s cover
“Since insurance for senior citizens is too expensive, availing of the group cover provided by your child’s employer is a good idea,” says Sunder. So if your child’s employer covers parents and in-laws, avail of the maximum limit available to you, even if there is a co-payment clause. This is because such plans are heavily subsidised and you could get these for a much smaller premium than is available in the market. To protect himself and his family, the child can buy an independent family floater plan, which will be much cheaper given that he is much younger than you.
Buy health insurance
If your child’s employer does not offer a group cover and it is impossible for you or your child to buy the expensive medical cover for senior citizens, try another approach. Buy a small basic health plan of, say, Rs 3 lakh or Rs 5 lakh, and supplement it by buying a much bigger top-up plan of, say, Rs 10-15 lakh, with a deductible of Rs 3 lakh or Rs 5 lakh. This means that you will be able to use the top-up only after exhausting the primary cover of Rs 3 lakh or Rs 5 lakh. However, it will be much cheaper than a basic plan of, say, Rs 20 lakh. If your child buys the insurance for you, he also has the incentive of claiming tax benefit of up to Rs 50,000 under Section 80D for the premium, if you are above 60 years of age.
Medical buffer
If you or your children are unable to buy insurance, it’s advisable to build a contingency corpus or a medical buffer. Depending on the amount you are likely to require, split the amount between you and your child as per his ability to contribute. This will help take the burden off both the parent and the child and will ensure that neither is forced to dip into his corpus for other goals during a medical emergency.
Plan for emergencies
In addition to financial readiness, you should also have a plan in place for emergencies which could require your children’s help. Provide kids with the details and location of insurance and medical documents as well as cash that needs to be accessed during an eventuality. Keep your children’s mobile numbers on speed dial along with those of ambulances, regular doctors and hospitals.
Also read:
These emotional decisions to help adult children financially are bad
5. SHOULD YOU TAKE FINANCIAL HELP OR ALLOW KIDS TO HANDLE YOUR FINANCES?
Only if they have the expertise and your best interests at heart.
Financial dependence is never a good situation to be in, either for adult children or parents, but the risk of dependency is much higher for parents. There are two ways in which you, as parents, can become dependent on your adult kids. One, poor financial planning can leave you short of funds in retirement and you may have to ask for financial assistance from children in the form of a monthly contribution. Two, if you cannot handle your own investments or paperwork in old age, you may need to lean on your kids.
Taking financial help
If you don’t plan your finances well in advance and amass a sufficiently large retirement corpus to last a lifetime, you can be at the mercy of your children, who may or may not take care of your needs. The risk is high because at the fag end of your lives, you will have neither the earning potential nor career opportunities to explore. This can be exploited by kids to grab more than their share of inheritance.
Disturbing child’s goals & ties
When the child is married and has a family, he will need to give priority to his own financial needs. If assistance to parents takes precedence, it can not only sour his equation with the spouse but also derail the family’s financial goals and planning. This can easily create a rift between you and your children. To keep the familial bonds intact, it is essential that you keepyour financial planning separate from that of your adult kids.
Handling investments
You may not require money from children, but they can handle your investments and paperwork. “It is fine to take advice or information from kids, but parents should take their own financial decisions depending on their risk profile and investment horizon”, says Agarwal. If, however, the children have the expertise and trust level is high, it is not a bad idea to let them handle the investments and documentation for you. They can help generate income when you need it most. This also keeps them updated about your finances and makes the transition easier for them after you pass away. If, however, they don’t have the expertise, opt for a financial planner.
Maintenance and Welfare of Parents and Senior Citizens Act, 2007
If you have not planned your finances and require assistance in old age, the children cannot absolve themselves of all financial responsibility. According to the Maintenance and Welfare of Parents and Senior Citizens Act, 2007, it is legal and mandatory for adult children and heirs to provide maintenance to senior citizens and parents.
6. SHOULD YOU BUY PROPERTY AS A LEGACY FOR CHILDREN?
No, as it’s easier to pass on other assets without disputes.
For parents with money to spare, leaving a legacy in the form of property is a personal decision, but it may not be the most practical way to pass on your inheritance to the children. “Parents’ lives should not be driven by children’s needs. If this means not being able to leave behind a property for kids, they should not feel guilty about it,” says Agarwal.
Property disputes
Nearly 66% of all civil cases in India are related to land or property disputes, while 25% of all cases decided by the Supreme Court involve land disputes, according to the Centre for Policy Research. So, if you buy a house for adult children but die without a will, the property may lead to problems among siblings, more so if a single house is to be split among two or more children. Even with a will, there are likely to be disputes after your death because a will can be contested easily. Besides, archaic property laws mean that the judicial resolution might take several years and your children may end up spending a lot of money.
Personal use
If your children are abroad or in different cities within the country, they may not need the house for personal use. If they do decide to retain it after retirement, it will either require major renovation or will need to be sold in exchange for a new one. This will require a lot of money and physical presence, besides turning into a tedious and cumbersome process for children staying in far off places.
Investment
If the property is to be used as an investment by adult children, don’t pass it on through a will. To avoid disputes, sell it during your lifetime and distribute the money among them. “If you do want to leave a legacy, you might as well give liquid assets which are easier to transact,” says Sunder.
Reverse mortgage
If you have bought property as a legacy for kids, but the latter do not need it or you run short of funds in retirement, reverse mortgage is an option. This will help generate additional income while you are alive, and offer a good way of selling the property after you die. This is because the lending institution will dispose it of after your death without the children’s intervention. If kids want to keep the property, they will need enough funds to repay the loan.
Also read:
How to make your child grow into a financially self-reliant adult
7. CAN YOU EVICT ADULT CHILDREN FROM YOUR HOUSE?
Yes, they can live in your house only at your mercy.
The cultural conditioning in India is such that adult children stay with their parents till they get married and even afterwards. This arrangement is often frought with tension and rifts can widen beyond repair when it comes to sharing finances or distribution of inheritance. What should parents do if the demands and pressure from children becomes overwhelming?
Evict adult kids from house
You can keep the kids in your house only as long as you want to. According to a 2016 Delhi High Court ruling, ‘A son, irrespective of his marital status, has no legal right to live in his parents’ house, and can reside there only at their mercy’. This turns into a blanket right to throw out children if they turn abusive, as per the rulings of various high courts. This is applicable to both married and unmarried son and daughter, as well as the son-in-law or daughterin-law.
If property is not self-acquired
The children who are ill-treating their parents can be shown the door from any type of property, according to a 2017 Delhi High Court ruling, which was an improvisation of the Maintenance and Welfare of Parents and Senior Citizens Act 2007. The property can be self-acquired, ancestral or even rented, as long as the parents are in its legal possession.
Kids’ legal right over property
There is no legal concept of disowning a child in India, so even if parents evict an adult child, he retains the legal rights over property. The parents can limit these rights only in case of a self-acquired property, by cutting him out of the will. In case of an ancestral property, they have no control since the child has a right to it by virtue of birth. If a parent dies without a will, the selfacquired property goes to legal heirs.
Procedure for evicting children
To throw out abusive adult children, the parents can file an application to the Deputy Commissioner or District Magistrate of his district. In Delhi, the application is forwarded to the Sub-Divisional Magistrate, who has to send back the report with final orders within 21 days. If the property is not vacated within 30 days, the DC can have it evicted forcibly. The Senior Citizens Maintenance Tribunal also has the power to order the eviction of children who are harassing their elderly parents, as per a high court ruling.
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