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Should We Lend Our Savings to Our Daughter in Order to Increase Our Income?
I am age 87, retired-disabled; my wife is 78 and working part-time but looks forward to retiring soon. We own a home with a substantial mortgage, have a modest IRA, and about $70,000 in savings. We are being hit by excessive, crushing health insurance costs and our resources and SS income now are not quite enough to maintain a decent living standard. Our daughter has offered to help and we have discussed lending our savings to her business long term at 10% interest, which would be taxable income to us. Daughter is also willing and able to donate some gift money to parents if needed. Any alternate ideas; can I structure a plan where there will be no tax on the interest income? Or some kind of gift arrangement that would be better?
Generally, we would advise against intra-family loans where this is your total life savings you're putting at risk. Why not leave the $70,000 in an FDIC insured bank account and let your daughter make gifts to you and your wife. She can give each of you $13,000 a year gift-tax free. If she is married, she can give you twice that amount. An alternative would be for your daughter to lend you the money and for you and your wife to give her a mortgage on your home to make sure that is repaid. We call this a "private" reverse mortgage. If your daughter does not have sufficient funds, you can also get a commercial reverse mortgage, but it would be more expensive and would have limits on how much you could borrow. However you choose to go ahead, you should document it in writing so that you make sure that everyone has the same understanding of what the deal is.