Investing on Behalf of or Maybe Commingled with Parents

[Daniel L.]

My parents have equity in a property of which drawing $200k on the HELOC in no way risks their livelihood. They've done so before for investment purposes and wish to exercise it again. They're wanting to explore one of two things.

1. Having me invest the funds with my wholesaling regime or
2. Having me partner with a local builder with an A+ track record for transparency/integrity/investment acumen (hundreds of deals)

They'd like me to exercise the investment decisions and just give them periodic status updates and not have to double signature anything. What custodian options are available to us other than my getting power of attorney? Is there such a thing as power of attorney over only one HELOC or savings account? (We currently have shared checking & savings accounts) Lastly, I'd like to know what tax implications might result if the HELOC funds were just transferred into our joint savings or checking and then ultimately leveraged for wholesale purchases or put into escrow for use in partnering with the builder. Any and all insight is greatly appreciated!

[Jon Holdman]

Create an entity (e.g., an LLC). Have your parents invest their money into the LLC. You're the manager, they're the members. Write up a strong, clear operating agreement that covers who does what and the capital splits. Either pay yourself a salary or hourly rate from the LLC, and take an equity split (a small one, considering you have no money into the deal.)

Taxes come on the back end. That is, when there are profits or losses. If the LLC is wholly owned by your parents and you're taking a paycheck, the paycheck would be an expense for the LLC and income for you. The net profit or loss from the LLC would go to your parents tax return. If you also have a portion of the equity of the LLC, then the LLC would file a partnership tax return and give K1's to both you and your parents. Each of you would put your slice of the profit or loss from your K1 onto your own returns. If you're getting a paycheck, too, you would put that on your tax return.

I would not just commingle this with your parents checking account. Set up a separate bank account, even if you do this informally. Even without forming a LLC, you still have a partnership and may need to file the partnership return. For that matter, get your own checking and savings accounts, too. I can see you being on your parents account and them being on yours, but I don't see why you would mingle your finances on a daily basis.