At Bordeaux, we guide clients to evaluate their financial life holistically, helping them develop an ongoing, long-term plan that allows them to live the life they envision for themselves and their family. This was the case for Bay Area residents Jessica and Jim, who needed a creative solution to help their adult children establish themselves as they started their own families.
Jessica and Jim were in their early 60’s and enjoyed successful careers as a Physician and Venture Capitalist near San Francisco, accumulating a significant net worth. Together, they raised three kids and wanted to ensure that their children (and future grandchildren) would remain nearby as they launched into the next stage of life. When their daughter Kelly married and began planning for a family, Jessica and Jim became concerned the young couple would not be able to afford a home in the expensive Bay Area.
Jessica and Jim did not want to simply give their daughter a house; they knew Kelly enjoyed working towards a goal and wanted to earn her first home. However, they worried that without assistance, Kelly and her husband Ryan would have to leave the Bay Area for a more affordable location to start their family.
Was there a way for Jessica and Jim to help the couple without stepping on their daughter’s toes? How would Kelly and Ryan be able to make mortgage payments given the disparities between their earnings and house prices in the Bay Area? Was there a way that Kelly could use her existing trust to pay for a house?
Working with Bordeaux Wealth Advisors, Jim and Jessica discovered that they could purchase a home and establish an intrafamily loan classified as an interest-only mortgage so that Kelly and Ryan could eventually buy it from them. To ensure that Kelly and Ryan could afford the monthly payments, their advisor suggested that 50% of the profits from Kelly’s trust (which received income from Jim’s Venture Capital funds) be funneled towards their mortgage payments.
Jim and Jessica implemented the plan and got the loan approved as a mortgage by the county. They then altered the terms of Kelly’s trust so that she could use part of the profits to pay down the loan. Jessica and Jim paid the taxes on the trust and its distributions because it was set up as a grantor trust. This minimized Kelly and Ryan’s tax liabilities and allowed Jim and Jessica to move money out of their estate. Additionally, Kelly and Ryan received a tax deduction for paying the mortgage interest, and eventually, they were able to take over ownership of the home outright.
Many successful parents want to help their adult children financially as they launch. The challenge is to find a solution that enables the parents to alleviate some of the financial burden from their children while affording their children independence.
At Bordeaux Wealth Advisors, we prepare financial plans for our clients to assess how they can best aid their beneficiaries, whether that be through estate planning or creating a specialized loan program to help their children. For those who have a specific goal concerning their children, such as the child staying in the same area, we work with both parties to minimize financial burdens while providing a customized approach to solve the issue. Once we have created the plan, we continue to work with the parents on legacy and charitable planning, and retirement analysis, while also helping the children manage their financial future.
