Rules of the roost

Setting reasonable boundaries is important when children move back to their parents' home, whether they're 23 and searching for a first job or 40 and bankrupt. Parents should draw up a contract of responsibilities: What chores will they do? Can they have guests, and if so, until what hour? How much will they contribute to gas, utilities, food, and rent? And when do they plan to leave?

Charging rent, even a small one, is worthwhile, says Eleanor Blayney of McLean, Va., consumer advocate for the Certified Financial Planner Board of Standards and author of "Women's Worth: Finding Your Financial Confidence" (Directions, 2010). "You're beginning to model true behavior that the person is going to have to practice in the real world," she says.

If you're concerned about your child becoming too comfortable back amid his high-school trophies and Shaq posters, make him occupy a guest room instead. And when he's ready to move to his own place, you can ease the transition by helping with the security deposit and first month's rent or paying half the rent for, say, six months.

You might have to practice tough love, says Jon Gallo, an estate attorney in Santa Monica, Calif., who with his wife, Eileen, a psychotherapist, wrote "The Financially Intelligent Parent" (Penguin USA/New American Library, 2005). The Gallos, who also offer consulting services, recall a client who set a deadline for an adult daughter to move out after living at home for months without seeking work. On that day, a moving van showed up at the house. "The parents paid for her to stay at a local motel for two weeks," Jon Gallo recalls. "She had a full-time job within 48 hours."

If you intend to give your child money, don't attach strings, experts say. "If you think a gift is corruptive, limit the amount," Blayney says. "Or sit down and have a talk about what the gift means, and under what circumstances you would ask to be repaid." Federal law allows people to give up to $13,000 a year to anyone without gift-tax consequences. Couples can give $26,000 per recipient each year.

If you decide to make a loan instead, structure it so that everyone benefits, suggests Jonathan Bergman, a certified financial planner and vice president of Palisades Hudson Financial Group in Scarsdale, N.Y. With auto loans running at 8 to 10 percent, for example, and five-year CDs paying less than 3 percent, a below-market rate of, say, 6 percent would work for both parties.

Keep in mind that the IRS requires you to report interest earned on a family loan, and if the rate is below a level set by the IRS each month you'll also need to report forgone interest on your tax return.

Outline the loan's terms in writing—principal, interest, payment due dates, and time limits. A private loan won't help build or improve your child's credit history.

This article appeared in Consumer Reports Money Adviser.