(MENAFN- News Direct) > It's not uncommon for parents to help their adult children with the purchase of a house, but sometimes that monetary gift can set the parents back more than they expected.

Take Jenna's father, for example. Jenna, who lives in San Antonio, recently called in to The Ramsey Show with a family problem. (1)

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"My dad sold me and my older brother our childhood home back in 2021, and the stipulation was that he could still live on the property and not have to pay rent or utilities. My older brother and I rent out the house, and we make about $3,400 a month in profit off the rent."

That may not sound like a problem, but as Jenna explained, her dad now wants $400 a month from the rent payments because he's struggling to live on his Social Security alone. Jenna's father raised the family as a single dad and didn't save much for retirement.

While her brother would happily give their father the cash, Jenna's worried the amount is going to increase every year, or that her dad will give some of that money to their youngest brother, who is financially irresponsible. She's also worried about how her dad spends his money and doesn't want to just hand over cash without auditing his finances first.

Hosts Dave Ramsey and Rachel Cruze had a lot to say about the situation, and while Ramsey addressed the question of whether to give Jenna's dad the money, his first concern was about the transfer of the house.

'He shouldn't have given you this house'

As Jenna explained, her father sold the home to her and her brother for well under fair market value. The house, which is worth around $1.3 million, was given to Jenna and her brother for $50,000, with the stipulation that the children will take over the $450,000 mortgage. Of course, the other stipulation is that Jenna's father gets to live on the property rent-free.

Parents can transfer homes to their kids in a number of ways, including gifting, selling, transferring via trust or leaving the home to their kids in a will. In this particular instance, Jenna's father gave his children a massive discount on his house, and he apparently did so without considering the state of his own finances.

"He's not very wise," said Ramsey. "He shouldn't have given you that money. He shouldn't have given you this house. Only after you're paying your bills and have a plan for your bills do you start giving stuff away."

Ramsey pointed out that Jenna's dad would have had a lot more money to live on if he sold the house at market value and hadn't given his kids such a large gift. However, seeing that the kids now own the house and dad is struggling, Ramsey believes Jenna is obligated to give her father the money.

"If someone had given me a half-a-million dollar gift... I wouldn't think anything about giving them $200," said Ramsey, noting that her brother would contribute his own $200.

Read more: I'm almost 50 and have nothing saved for retirement - what now? Don't panic. These 6 easy steps can help you turn things around

How to gift property responsibly

There are many reasons why parents may want to transfer a house to their kids, or give their children a substantial financial gift.

But before doing so, parents should review their financial situation to ensure the gift won't negatively impact their future finances. If the prospect of giving their kids such a large gift leaves parents questioning whether they'd be able to fund their own retirement, the parents may want to think twice about that gift.

In Jenna's father's case, if he had taken one good look at his finances before selling his home to his kids at a massive discount, he likely would have noticed that the sale would substantially set his future finances back.

Instead, he could have sold the house at fair market value for $1.3 million and used the profits to pay off the $450,000 mortgage. That would have left him with about $850,000 to downgrade to a smaller home and fund his retirement. He then could have gifted his new home and whatever money he has to his children in a trust or a will.

When it comes to responsibly gifting property to children, a revocable living trust allows the parent to maintain control of what's in the trust, as well as avoiding probate and ensuring a smooth transfer. This could have been a good option for Jenna's father to explore.

But before setting up a will or a trust to transfer property, a caring and generous parent such as Jenna's dad could benefit from talking to an estate planning lawyer, or a financial adviser, to ensure the gift isn't a burden on their finances.

Helping your children out financially is a great way to take care of your family, but it's important to also take care of yourself as you're doing so.

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This article originally appeared on Moneywise under the title: Texas woman's dad sold $1.3M home to her for $50K - now he's short on cash. Dave Ramsey calls it a lesson for parents

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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