Giving Responsible Gifts to Irresponsible Children

When she died, Ellen left an equal share of her $500,000 estate to her irresponsible daughter. Here’s how she did it.

Like most parents, Ellen wanted to treat her three children the same – to the penny. But Ellen worried about Kathy, who had a spectacular talent for wasting money. In her last days, Ellen fussed and fretted often about leaving Kathy more than $150,000. Would it help Kathy? Would it hurt her? Would Kathy’s boyfriend manipulate her to get her money? Would Kathy quit her job? How would Kathy feel if mom left her out of the Will?Man and women giving gifts to their irresponsible children

Ellen and I discussed creative ways to protect Kathy while giving her an equal share. When we discussed leaving Kathy an annuity – a guaranteed income for life – Ellen smiled. It would give Kathy the security of a monthly income of about $1,000 per month as long as she lives. Ellen created a trust spelling out her wishes and hopes for her daughter.

When her mother died, Kathy was a little upset that her money was “tied up.” Now, five years later, Kathy appreciates mom’s wisdom. The guaranteed income has given her security. She’s still working and her life is better.    

You can find a good way to leave money to your difficult children (or grandchildren) if you follow two rules:
 
Rule one: Be creative. There are ways to deal with your child’s weaknesses.

Rule two: Don’t be afraid of tough love. Make the decision now to treat your children equally but differently. Like Kathy, they may resent you for a short time but you will be gone. When they are older, they will praise your wisdom.
 
Be creative. Here are some possibilities. (You should talk to an attorney about the advantages and drawbacks of each of these ideas.)
1. Annuity. Like Ellen, you may choose to leave an annuity of a guaranteed income. Annuities can pay equal amounts over time or payments can vary.
2. A house they can’t cash in.  Always having a home can bring stability to unstable people. No matter how bad life gets, there’s no place more comforting than your own place. If you leave the house in a trust, you can assure they will not sell it and spend the money. If your child needs to move, the trust can sell the house and purchase another house in another city. You can have the trust pay the insurance and taxes so the property stays free of liens, and your son or daughter will always have a place to call home.
3. An income-matching inheritance. You know from experience the blessings that come from work. If your child does not like to work, you can leave an inheritance in a trust which matches his or her earned income. You can match dollar for dollar or match a percentage; you can guarantee a minimum income plus matching; or you can do it any other way you want. It will keep them working.
4. Pay for performance.  Some of my clients leave money in trust to be paid out when the child meets certain goals. A child may get a percentage of her inheritance when she graduates from college. Another might receive a cash amount when he marries. Grandchildren can be surprised with gifts when they meet religious or education milestones. Children might receive a down payment when they buy a home.
 Be creative. You can find a way to leave a legacy that matters.

by Jack Helgesen

(Note: we do not disclose the identities, stories and confidences of our clients. While stories in this blog may describe real events and real people, we alter names and facts to protect the true identities of the people involved.)
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Published September 2, 2009

Helgesen, Houtz & Jones $$(801) 544-5306