The Moneyist: ‘I’m worried that my daughter would blow through her inheritance.’ My family has a trust fund worth $6 million. Should I keep this money a secret from my kids?
My parents, who are now deceased, had a living trust with a provision for creation of a new trust that would allow my brother and I to share the income from that trust during our lifetimes.
When we both die, the principal from that trust is to be distributed in equal parts to the three grandchildren (I had two children, my brother had one).
Over the years, the principal in that trust has grown to over $6 million. As my brother and I are still in reasonably good health, I anticipate another 10 to 15 years before either of my children will see any of that money.
I have kept all of this information secret from my children (now ages 30 and 33). My children had a lot of difficulty growing up and their father (we are divorced) enabled a lot of behavior by giving them money well into their adulthood. Their father died about 1.5 years ago, so that money is no longer flowing.
How and when should I tell my children about their ultimate inheritance? My son is working and could absorb the idea that his share of $2 million isn’t as much money as it sounds like. He would likely use income derived from it as a supplement, rather than a replacement for working income.
But my daughter has not arrived at hat point in her life yet, and I’m worried that my daughter would blow through her inheritance with little to show for it and a much worse life afterwards.
What should I do?
Who gives advice columnists advice?
The answer to that question is directly related to my answer to your dilemma. I could give you my suggestion right now, but that is not often enough and this column would be over before it began. So please indulge me. Financial, legal and familial choices are fueled by emotion, ego and experience. I’d like to say that I could always trust myself, but that would be a lie.
Still, who wants advice from a braggadocio who tells everyone what to do, and stands on the highest mountain or sits in the studio of the highest-rated cable channel to do that? Who would trust someone who always claims to be right and never puts a foot wrong? As Johnny Lydon sang, “I could be wrong, I could be right.” I’m not sure there is a right/wrong answer here.
We weigh up the pros and cons with the information we have, and then we make a decision. So who do I listen to? My inner Jiminy Cricket. The fellow with the blue top hat and the red umbrella, who always seems to have a wise word. I like his wise, upbeat manner. He doesn’t see conflict, he sees resolution; he doesn’t see fear, he sees opportunity; he doesn’t see badness, he sees pain.
A few years ago, I asked a friend who spent years in special ops in the U.S. military in war zones overseas the secret to figuring out complex mysteries and moral dilemmas, and how he knew who to trust. After all, he was highly trained and scoped out dangerous territories in foreign lands with unexpected dangers lurking around every corner. His answer: “I trust my gut.”
That — finally! — is what I advise you to do now. If your children are on an upward trajectory, and they have learned to stand on their own two feet and they are focused on putting good into the world, being productive members of society, while supporting themselves and/or their families, marvel at their achievements from a respectful distance. Help them with their financial planning.
You can structure their respective trusts in a way that gives them enough freedom to make their own decisions, while providing them with the funds if/when they need them, and making sure there’s enough there for their own children’s education. You may wish them to know that you have the means to help, and perhaps intervene to assist with a deposit on a house, or further education.
Sometimes the hardest thing to do is to do nothing at all. If your stock portfolio hit a bump, like the markets have done this week, you would be wise not to act without consulting your broker. If your Patek Philippe watch made from sapphires and alligator leather was working like a charm, you wouldn’t start shaking it, and wishing it would run faster.
Did your children have problems choosing a career and/or a failure to launch? Or did they sit at home all day smoking marijuana or, worse, have more serious issues with alcohol or harder drugs? Or…? So I suggest you do what any parents, with or without millions of dollars in a trust fund. Stay engaged in their lives, see opportunities to help, and keep an eye on their progress.
You could release money in installments when your children are 35, 40, 45 and 50 years of age, provide them with an income that gradually increases over time, set up joint investment accounts, and/or use a portion of them money to teach them about saving, such as maximizing their 401(k). Or you could structure it as I suggested above. It obviously depends on the rules of the trust.
Review the state of play annually. I agree with you. Trust must be earned, but it also requires a leap of faith.
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