When Greig Detering left behind his comfortable life as a telecom engineer and set out to do missionary work abroad, he had a powerful calling -- but not a lot of financial firepower. While he owned a home in Phoenix, he says, he lost most of his nest egg in 2002 when his employer's stock dropped from $83 to (ouch) $2 a share. Fortunately, after his own resources ran dry, Detering's fledgling ministry found a steadfast benefactor who kicked in $5,000 to $20,000 annually for several crucial years -- to help support his evangelistic efforts across more than a dozen countries. And when Detering, now 54, began looking for a "transportation and communications hub" for his South American operations, the same supporter kicked in $120,000 to purchase a Buenos Aires condo in a deluxe residential tower, complete with a pool, a fitness center and conference rooms. It wasn't the larger option on the higher floor that Detering had originally proposed -- but, hey, a kid sister has to set some limits.
It didn't hurt that the sister in question, 53-year-old Diane Paddison, had been chief operating officer of two Fortune 500 companies and, Detering admits, had done a better job of managing (read: diversifying) her nest egg. It also helped that she and her husband, Chris, a management consultant, found Detering's missionary work in keeping with their largely faith-based philanthropy. Then there was the fact that they "learned to take care of each other," Diane says, when they were growing up on the family farm. But while Detering says the property has appreciated 25 percent in value since 2007, owning real estate overseas turned out to be a huge administrative hassle; in fact, much of that gain was offset by the $20,000 cost of officially transferring the title to his ministry. Ultimately, says Detering, "it was really just them helping me out."
Say, Brother, can you spare a...few thousand bucks? We've all heard about the so-called sandwich generation, anxiously watching as its retirement savings are chipped away by the needs of aging parents on one side and boomerang kids on the other. But financial planners say that few people factor in the impact of other family members -- that is, financially challenged siblings -- who might sheepishly slip in a loan request while helping dry the holiday dinner dishes. Sometimes -- like when the contributing sibling can afford to provide the help, as with Detering and Paddison -- the arrangement can work out well. (Bonus points when the borrower's needs align with the lender's charitable values, and when the receiving sibling isn't addicted to gambling, controlled substances or daytime TV.) But experts say that in this unforgiving economy, baby boomers in particular, many of whom grew up in fairly large broods, are seeing a bump in financial requests from close kin who lost a job, ended a marriage or -- sounding familiar yet? -- got caught in the housing bubble. According to a recent MetLife study, nearly half of Americans say they gave money to a family member in the prior year to help pay bills. And as boomers move beyond their prime earning years, experts say, requests will likely accelerate. Forecasts of historic wealth-transfer windfalls (aka inheritance) for boomers in the coming years are overstated, reports AARP's Public Policy Institute. What's more, the Employee Benefit Research Institute predicts that nearly half of Americans ages 36 to 62 may not be able to afford even basic living expenses in retirement.
Help This Way, Not That
Helping a sibling often goes about as smoothly as a family vacation, say financial advisers. Click here for some common scenarios and ways to avoid resentment.
Which means you probably don't have to look too far down the Thanksgiving table to find a struggling sib. Maybe it's the chronically underemployed one (whom one wealth manager jokingly labeled "the family liberal arts major") who has lost a spousal or parental safety net. Maybe he or she is part of the rising tide of American boomers without health insurance (nearly one-fifth of 45- to 54-year-olds in 2010) who could develop a costly medical condition. And with the divorce rate for the over-50 set doubling in the past 20 years, it might be a marital rupture that brings the person you once shared a bunk bed with back to crash on your own kid's upper bunk -- while bumming money for everything from gas to his children's college tuition. In a recent retirement study by Charles Schwab, a whopping one-fourth of respondents said they're worried they will have to financially support their siblings. And as the postwar babies try to steer their own ships into a safe retirement harbor, says Gary Gilgen, director of financial planning for Rehmann Financial, an advisory firm with some $2 billion under management, the last thing they need is extra cargo: "Some of them really can't afford it."
That financial pressure could make a tough -- and often fraught -- decision to mix blood and bank accounts that much tougher. "Money often is the adulthood trigger for childhood issues," says Suzanne Slater, a Northampton, Mass.-based psychotherapist specializing in family wealth dynamics. On the asking side of the equation, experts say, the risk includes not only the shame brought on by sibling competition and the resentment of being beholden, but also the prospect that a buttinsky brother or sister will feel justified in doling out heavy doses of advice with their dollars. There's also the "hidden string" factor, where the receiving party is pressured to, say, spend weekends expressing gratitude by cleaning his brother's gutters.
For the giver, problems start with the strong prospect that a family "loan" -- especially an undocumented one -- can be as good as money flushed. "Precisely because a sibling loves and trusts you, they may expect you to understand when there's a barrier to repayment," says Timothy Burke, CEO of Massachusetts-based National Family Mortgage, which facilitates loans between kin. Indeed, financial therapists, a new breed of psychologists who help people understand their money-related behavior, say the line between compassion and enabling is frequently a blurry one. Plus, the situation can easily rankle a lender's spouse, who may be less inclined to allocate hard-earned marital assets to a brotherly bailout. But as the economy leaves many Americans struggling to pay for basics like homes, health care and higher education, more will be facing the question of who they are willing to backstop in life -- and to what degree. "I'm definitely seeing more noise and discussion about siblings," says Erin Botsford, a Dallas financial adviser and the author of The Big Retirement Risk, who says she's seen such requests jump 20 to 30 percent in her practice in the past few years. "To ignore them is to the clients' peril."
Several times a year, Merrill Lynch invites a few dozen well-heeled clients to the campus of a prestigious business school like Wharton or Stanford for an intensive multiday boot camp on the finer points of managing wealth. There are the usual PowerPoint presentations on portfolio structure and asset allocation, but Stacy Allred, director of the firm's private banking and investment group, says there's also a lot of talk about softer topics (think prenups and family beach house squabbles). The conversation gets especially animated when the subject turns to family and friends with upturned palms, according to Allred. These days, it seems, being seen as the moneybags of the brood can put a bull's-eye on your back, whether you succeeded in business, invested savvily, married well -- or just didn't squander the family inheritance. Allred says that so many clients have complained of uncomfortable conversations or bizarre requests (one couple got an anonymous note asking them to leave money in the mailbox at midnight) that her team has developed a strategic tool borrowed from the business world: the elevator speech.
It might go like this: "Thank you for sharing this concern with me. My spouse and I have a policy that we take 48 hours to carefully consider a request like this." (Goal: Establish a cooling-off period.) Or this: "We have a policy against mixing money and friendships/family relationships. They're too important to us to risk." (In elevator speak: Please exit on the next floor.) There are multiple variations on the theme, says Allred. But the basic idea? Keep it short enough to get through in an elevator ride. Inject a businesslike formality. And gain control of the conversation before it devolves into wheedling, waterworks or other high-pressure appeals to the heartstrings.
Because, experts say, once the purse is open, the appeals have a way of snowballing -- and not just for the 1 percent. New York-based financial planner Kevin Kautzmann says he has one client, a single 56-year-old Manhattan lawyer, who may wish she'd had an elevator speech ready when a recently divorced sister asked if she and her two teenagers could move in until she got back on her feet. Two years later, the attorney still finds herself the sole breadwinner for her three perma-guests, on the hook for everything from food and clothes to college-savings contributions. (And did we mention the hefty private school tuitions? Changing schools would be too much of a disruption, he says the sister argued.) Problem is, Kautzmann says, all this new overhead has his client lagging behind on her own law school loans and racking up credit card debt: "If she keeps going, there won't be a retirement."
According to the Pew Research Center, 40 percent of adults with an elderly parent gave them money in the past year. And in another study, nearly a quarter of baby boomers said they are financially supporting an adult child. Those strains are usually anticipated to some degree, but many boomers discover late in the game that a prosperous-looking sibling was actually highly leveraged or that Dad has been subsidizing their baby sister's rent for years -- a dependency that at least the sister might assume will transfer somehow when the parents go into nursing care or pass away. "People get used to that extra money. It's like economic heroin," says Timothy Knotts, a financial planner in Red Bank, N.J. Indeed, planners tell tale after tale of clients being blindsided by a brother or sister in various financial straits. But, says Marty Martin, a professor of business at DePaul University and a practicing financial psychologist, the filial imperative is not the same as helping a sick parent: "When it comes to siblings, there's one question of being able to help and another of being willing to help."
Kimberly Foss, the baby of a brood of six, has been both. As president of Empyrion Wealth Management in Roseville, Calif., the veteran financial planner oversees more than $200 million in assets, and advises clients to keep emotion from clouding their financial decisions. But when arriving at the office, those same clients may be greeted by a chatty 63-year-old receptionist who looks remarkably like, well, Foss. For $20 an hour, the adviser has hired her older sister Georgette Burkett to do everything from answering phones and ordering office supplies to getting sushi for visiting clients -- an admittedly awkward arrangement, but one that Foss says she's maintained for nine years to help her older sister bolster her retirement nest egg.
It hasn't always been easy. During the financial crisis of 2008, 50-year-old Foss ended up cutting her own salary 30 percent but kept Burkett on full-time hours and pay. And these days, she says, while clients love her always-funny receptionist, she does wish Burkett was more agreeable about all her duties. "Whenever I ask her to scan something," says Foss, "she says, 'I really don't want to do that.'" Burkett, whose previous work experience included medical billing and running a bar, says sometimes the sisters' personal stuff can seep in: "She's a good boss, but she has her issues."
Of course, not everyone has the luxury of putting a sibling on the payroll for the better part of a decade. Enter the burgeoning intrafamily loan business -- often a place of last resort when today's tightfisted banks say "no way" to a much-needed debt-consolidation loan or mortgage refinancing. These days, anyone considering a plunge into filial financing -- and wanting to avoid the "Bro, where's my dough" nag factor -- has a handful of do-it-yourself lending firms to choose from that have, by their own account, facilitated hundreds of millions of dollars' worth of deals between family, friends and even strangers looking for a decent rate of interest. National Family Mortgage, for one, says its sibling-to-sibling refinance deals have more than doubled since 2009. Whether these so-called peer-to-peer companies simply provide paperwork and loan scheduling (LendingKarma.com, LendFriend.com) or offer more robust loan "marketplaces," complete with screening and underwriting (LendingClub.com, Prosper.com), they all promise to help lenders formalize the deal, avoid onerous bank fees and sidestep potential gift-tax pitfalls. But even the companies caution that the loans aren't backed by collateral; if a borrowing sibling, say, declares bankruptcy, this debt goes to the back of the proverbial line, behind those of secured creditors. Says Geno Moscetti, CEO and cofounder of San Francisco-based LendFriend, "There's no way to make anything foolproof."
When Bill Rodgers, a 62-year-old national-grocery-chain manager, agreed to sell his half of the family home in Wayne, N.J., to his brother Jim, 54, using a private mortgage, they chose a different way to formalize the $120,000 loan (and no, it didn't involve clinking beer bottles or pinky-swearing on the deal). Bill found a lawyer who charged just under $1,000 to draw up a formal 15-year agreement and register the loan. The arrangement included a payroll deduction for Jim that's routed directly to Bill's bank account, so Bill says the two can enjoy their brotherly boating trips and holiday shindigs without the need to talk money. (He does say his wife wasn't thrilled about his decision to not charge his brother interest.)
But as it turned out, there was one thing none of them could have factored in: Last summer, Hurricane Irene flooded the home, wrecking the foundation and ultimately reducing it to a condemned heap. But Jim's still paying the mortgage note, and the brothers say it will eventually be transferred to a new house, once the insurance and other matters are fully settled. "I didn't think it would be a problem," says Bill of the six-figure outlay that would otherwise be earning interest in his account. "I was doing it as a favor to my brother."