Spendthrift Heirs - What To Do?

[OldShooter]

... These folks are a salespersons best friend. Especially the vehicle salesperson who gets commission on the car, on the car loan, and on any extras that get tacked on to the car like protection or extended warranties. They are fish in a bowl.

One day I noticed that a friend was driving a new Jeep. I asked about it and he said he and DW had gone into the dealership looking for a used car, but "the salesman told me I could afford it." referring to the new car.

Friend is no dummy (so I thought anyway) Middle aged, marriied, kids, experienced managing his family's bar/night club, certified pilot, ...

 

[brett]

On the bright side I had a nephew call me a few months ago and ask my thoughts about a crypto currency investment he was considering.

My first two questions? What do you know about cryptocurrency and the crypto marketplace. Why would you invest all of your savings and borrow more to do the same for something you do not understand?

Second question...is that friend who is encouraging you to invest getting a commission on every dollar that you invest?

He called back two weeks later. He had decided against it. He did a little basic research, found out, among other things, that his 'friend' was getting a slice and walked.

That is an example of someone who has basic common sense and makes the effort to either ask for advice or to do an hour or so of financial research on his own.

As a result....he still has his money. He did not sign up for a loan, as suggested, to invest in this no loose once in a lifetime opportunity.

It is not rocket science. He is no boy genius. Just an average person who knew enough to know what he did not know.

He took the time and a small amount of effort so that he would not have to learn the hard way. And learned a lesson in the bargain.

 

[Sunset]

Same issue of one Daughter, spending like there is no tomorrow.. has debt on CC's.
I'm thinking ensure the grandchildren can pay for reasonable College costs via a trust and then the remainder to the big spender..

Interested in this thread for ideas.

Wouldn't this pretty much guarantee that big spender will have a miserable retirement? Maybe better to hold the money in the trust, available for retirement, or maybe to buy a deferred annuity?

I don't know if I can/should try to solve all the issues.
Right now the big spender could have a miserable retirement (other than for a pension being earned), whether she inherits $$$$ or not. So I'm not making it worse.
Possibly an trust or annuity would work, or she may just spend money on a lawyer to break the trust or sell the annuity to JGWentworth - and end up with a lot less $$$ in the end.

If I'm lucky, I'll get to spend most of it and solve the problem

 

[5Miler]

I mentioned this thread to DGF yesterday and we had a brief discussion about it. I have two sons from a previous marriage and she has no children. My oldest son just turned 48 this week and is retired Air Force with a VA pension and now works as a respiratory tech at his local hospital. Younger son is 46 and director level at a national trucking company. Both are in good shape financially but both dearly love their toys, big trucks and boats mostly.

As DGF and I discussed we do not feel obligated to leave a legacy so we will spend as we feel like it and they will get what they get. I have already told my sons they will probably get some inheritance from me but don't expect it to be life changing. DGF will do as she will with hers as her family doesn't need it but I don't expect her to leave it to my sons. We both set up trusts several years ago to take care of each other with the remainder to go to our respective families as directed.

Although I would prefer my sons spend a little less on their toys, I am not going to modify my plans for any inheritance for them. They are not children any more and I doubt I could change anything no matter how I try. They are not aware of out net worth and probably are quite confused about it as DGF and I both drive 22 year old vehicles yet travel a lot and usually fly business class. I prefer they not know and continue to stand on their own.

 

[brett]

I mentioned this thread to DGF yesterday and we had a brief discussion about it. I have two sons from a previous marriage and she has no children. My oldest son just turned 48 this week and is retired Air Force with a VA pension and now works as a respiratory tech at his local hospital. Younger son is 46 and director level at a national trucking company. Both are in good shape financially but both dearly love their toys, big trucks and boats mostly.

As DGF and I discussed we do not feel obligated to leave a legacy so we will spend as we feel like it and they will get what they get. I have already told my sons they will probably get some inheritance from me but don't expect it to be life changing. DGF will do as she will with hers as her family doesn't need it but I don't expect her to leave it to my sons. We both set up trusts several years ago to take care of each other with the remainder to go to our respective families as directed.

Although I would prefer my sons spend a little less on their toys, I am not going to modify my plans for any inheritance for them. They are not children any more and I doubt I could change anything no matter how I try. They are not aware of out net worth and probably are quite confused about it as DGF and I both drive 22 year old vehicles yet travel a lot and usually fly business class. I prefer they not know and continue to stand on their own.

We are of the same opinion. We cannot control our children. Not while we are alive and we have no desire to control them from the grave. Fortunately both are currently reasonably good financial stewards in their own way. We have done our best to prepare them.

If they cannot manage by the time they are in their forties/ fifties then there is nothing we can do for them. They will be on their own as it were. Cannot baby them all their lives. Providing a safety net all of their lives can do more harm than good IMHO.

We let one go into voluntary bankruptcy in the past. No reason for us to fund her creditors. It was the best decision we made. That experience turned the tide and turned our daughter into a very astute business person. Because she had to...sink or swim. We shudder to think what would have happened if we had bailed her out. More of the same probably.

Neither has any idea of our financial situation, nor do they need to. Like you we drive older (2006 and 2007) vehicles. We travel internationally for 8 weeks, twice per year. Plus some last minute travel from time to time. So they must wonder....as do some of our neighbors, friends, and relatives no doubt. We keep personal financial matters to ourselves.

The first cut to our estate will go towards our 4 grandchildren's post secondary edu. After that slice, the rest will be split down the middle. We want to provide the funds for their education no matter what financial situation their parents may be in at that future point in time when each have completed secondary school.

 

[Texas Proud]

Also remember... some people do not have a problem working their whole life... my DD is in college and I was talking to her about retirement and saving.... her comment to me was 'I do not want to retire'...


I laughed and said 'when you are much older and are looking at retirement remember what you just said'... the brain is not yet fully developed...

 

[Act2]

Unlike so many members of the board, I didn’t dream of early retirement as a younger person. It wasn’t that many years ago when I could not imagine wanting to retire. It’s the mark of a person who truly loves their job/profession. I was lucky to feel that way for many years. And then, it was no longer the joy it had been. So yes, I now look forward to retiring.

 

[brett]

Unlike so many members of the board, I didn’t dream of early retirement as a younger person. It wasn’t that many years ago when I could not imagine wanting to retire. It’s the mark of a person who truly loves their job/profession. I was lucky to feel that way for many years. And then, it was no longer the joy it had been. So yes, I now look forward to retiring.

Ditto. I loved my job. I was preparing for retirement financially but never really thought about it until my mid fifties. I was one of the lucky ones. Great industry, great employer, great colleagues. Something new every day.

 

[Finance Dave]

One option might be to leave instructions all or a substantial part of their "inheritance" be used to buy a life annuity for them so they are less likely to squander it... so rather than getting a lump-sum like a lottery winner, they would get $x per year like the lottery option that nobody takes.

Or perhaps a combination of a small lump sum with an admonition that you hope that they use it wisely along with monthly annuity payments for life.

While technically they could sell the annuity payments for a lump sum, you can't control that and hopefully they won't figure it out.

I like the annuity idea.

Another thought is to give half to them and the other half to a good charity...for example my DW and I were the first ones to EVER go to college in our families, and it helped our earnings IMMENSELY...so we are planning to make an endowment/scholarship fund.

 

[bigriver]

So why not let them grow up? Why leave them anything? Unless you have a business or were the Rockefellers, I don’t see the reason. I’ve told my parents over and over to enjoy life and spend it.
Of course I was left with my grandmother and great grandmother on the weekends in the 70s and heard about the depression. So I saved my entire life.
I have it left to take care of my parents, wife, then cancer patients.

 

[marko]

We are of the same opinion. We cannot control our children. Not while we are alive and we have no desire to control them from the grave..

Is grabbing a four year old before he darts into traffic controlling or protecting?

Is intercepting your 90 year old neighbor from withdrawing $50k for her "grandson who just got arrested as the man on the phone said" controlling or protecting?

Is preventing your brilliant 25 year old PhD daughter who's also mechanically clueless from driving on horribly bald tires controlling or protecting?

Some people, regardless of other capabilities don't need controlling but certainly need protection from a sudden arrival of a significant inheritance.

I've just seen way, way too many instances where Uncle Jim leaves a few million and drops it in the lap of someone. It often doesn't end well. Sometimes it does.

As I noted earlier, I saw a banker and a stock broker...and a few others.... go down a very ugly (and eventually deadly) path because grandpa hadn't the foresight to dole out money slowly instead of protecting these fools.

Even professional sports now have mandatory seminars for new young players who are suddenly handed millions of dollars in order to teach them the hazzards of instant wealth. They're not trying to control them, they're trying to protect them.

 

[Texas Proud]

Is grabbing a four year old before he darts into traffic controlling or protecting?

Is intercepting your 90 year old neighbor from withdrawing $50k for her "grandson who just got arrested as the man on the phone said" controlling or protecting?

Is preventing your brilliant 25 year old PhD daughter who's also mechanically clueless from driving on horribly bald tires controlling or protecting?

Some people, regardless of other capabilities don't need controlling but certainly need protection from a sudden arrival of a significant inheritance.

I've just seen way, way too many instances where Uncle Jim leaves a few million and drops it in the lap of someone. It often doesn't end well. Sometimes it does.

As I noted earlier, I saw a banker and a stock broker...and a few others.... go down a very ugly (and eventually deadly) path because grandpa hadn't the foresight to dole out money slowly instead of protecting these fools.

Even professional sports now have mandatory seminars for new young players who are suddenly handed millions of dollars in order to teach them the hazzards of instant wealth. They're not trying to control them, they're trying to protect them.

I think your examples are strawmen....


We are not talking about a 4 YO or a 95 YO person...



In regard to the 95 YO, if they want to take the money out and get scammed that is their choice... you do not have any control over them (AFAIK)...


As for bald tires.. what did you do? I would have informed her that she needs to get new tires... but if she is in an adult (which she is) it is her decision... now, you might want to spend your money to protect her but you are controlling in a way as she can only spend money on the tires..


We are also talking about giving them a good amount of money... do we do it with strings (control) or no strings... your examples were a one time thing...


Even though I put it down I do not think some strings are all bad... as an example I would offer to buy the tires for my DD... she has the right to accept the gift or decline it... I do not think that is control as she gets to decide what she wants to do..

 

[FLJim]

I am the OP and I have read all the posts. I want to thank all of you for your thoughtful responses. You ALL have helped me immensely. Thank you so much. I have never been here before - my first time thru life, so all your comments are valuable.

 

[Koolau]

Over 40 years ago I married a single mom and her 3 kids, 5, 7, & 9 at the time. (We had none together, and i have none from any relationships). All of a sudden (!!!) we are in our 70's, long retired, enjoying a NW of 5MM+ or so. Problem is that all 3 kids are devoid of money/saving/investing/management skills and might be called spendthrifts. All have good jobs, but nothing but debt to show for their hard work. (We tried teaching them and apparently failed.) Time to re-do our estate plan. Leaving each one a $2MM inheritance is reminiscent of the many stories of lottery winners squandering all their winnings and then declaring bankruptcy. Wife and I are, naturally, both emotionally involved. Would welcome any thoughts on how to make inheritances a blessing and not a curse.

Leave it all to charity. The kids will be no worse off and will have a lot less stuff around the house that they wasted all that money on.

 

[marko]

I think your examples are strawmen.......


Even though I put it down I do not think some strings are all bad... as an example I would offer to buy the tires for my DD... she has the right to accept the gift or decline it... I do not think that is control as she gets to decide what she wants to do..

Respectfully, you may be overthinking.

My point was this: the sudden arrival of large sums of money can be an extremely volatile substance that often magnifies the weaknesses of some.

Setting conditions in a trust is not about "controlling from the grave" but rather an attempt to protect some beneficiaries.

There were 60 of us in my high school class and about half of them were trust fund kiddies who just couldn't wait to get their hands on their FU money. Eleven of them never saw their 35th birthday. (We even jokingly had bets at the time on which one would be gone first)

DW and I have 9 nieces and nephews who will be our primary heirs. We already know who will use the money wisely and who would end up in bad place. We have provided guardrails in those instances, not to control them but rather to help insure that their lives end up no worse than when we were alive. I've just seen too much of it firsthand to not take it seriously.

 

[Texas Proud]

Respectfully, you may be overthinking.

My point was this: the sudden arrival of large sums of money can be an extremely volatile substance that often magnifies the weaknesses of some.

Setting conditions in a trust is not about "controlling from the grave" but rather an attempt to protect some beneficiaries.

There were 60 of us in my high school class and about half of them were trust fund kiddies who just couldn't wait to get their hands on their FU money. Eleven of them never saw their 35th birthday. (We even jokingly had bets at the time on which one would be gone first)

DW and I have 9 nieces and nephews who will be our primary heirs. We already know who will use the money wisely and who would end up in bad place. We have provided guardrails in those instances, not to control them but rather to help insure that their lives end up no worse than when we were alive. I've just seen too much of it firsthand to not take it seriously.

Might be... I was passing along the view of one of my sisters... I have no problem with guardrails etc... (I still think your examples were one offs though)



However, the other side is that there are ways to get around whatever guardrails you might put up if they are determined... remember the TV ad... "It is MY money and I want it NOW'... so somebody who has money issues can cash out an annuity...


And if you have step payments like at 25, 30 and 35 they probably can get cash for them also.. just pledge the payments and borrow the money..


Now, they might not have the smarts to do this which is why you put up guardrails but I do see more and more ads to sell your annuity, life insurance etc. to get cash now..

 

[dknighd]

I am the OP and I have read all the posts. I want to thank all of you for your thoughtful responses. You ALL have helped me immensely. Thank you so much. I have never been here before - my first time thru life, so all your comments are valuable.

This is sometimes an amazing place. I'm curious what end up deciding to do.


Feedback from somebody who is in that situation, and has digested and considered the various inputs, can be very useful to others. So please let us know what you decide. And perhaps your reasoning.


We all understand that your decision can change, everybody has the right to change their mind. One of my favorite quotes, and I do not know where it came from, is "If you can not change your mind, why have one."

 

[Venturer]

I am the OP and I have read all the posts. I want to thank all of you for your thoughtful responses. You ALL have helped me immensely. Thank you so much. I have never been here before - my first time thru life, so all your comments are valuable.

I think since the OP has responded then this thread is finished. No need to keep rehashing and trying to convince someone else to agree with your way or the highway!

 

[marko]

Now, they might not have the smarts to do this which is why you put up guardrails but I do see more and more ads to sell your annuity, life insurance etc. to get cash now..

In most trusts you're entitled to an income, not a large amount held somewhere that is paid out over time as an insurance settlement would be. There is a large amount but it is not designated to you...just an income amount divided by X beneficiaries. But sure, there's a way around everything.

I've already mentioned what happened to my uncle who, after failing in court to change some conditions, forfeited ten years of payments.

 

[marko]

I think since the OP has responded then this thread is finished. No need to keep rehashing and trying to convince someone else to agree with your way or the highway!

Sometimes we just enjoy pi$$ing at each other for fun.

But I'll give you a +1 anyway.

 

[dknighd]

I think since the OP has responded then this thread is finished.

No. it is not. We want to know what the OP decided.


edit: At least I do.

 

[Out of Steam]

Unlike so many members of the board, I didn’t dream of early retirement as a younger person. It wasn’t that many years ago when I could not imagine wanting to retire. It’s the mark of a person who truly loves their job/profession. I was lucky to feel that way for many years.

I wish that had been the case for me. My brother is 61, and plans to work until 67 despite not really needing the money.

While I had some stretches of enjoying what I did at work, and still miss parts of it, I never found a job that I got long-term satisfaction from.

 

[Route246]

This is a brilliant solution to a problem you will have no control over regarding designating beneficiaries' education. I have many family, friends and classmates who have had nice careers without divorce or death of spouse or other financial calamity and they simply lived above their means which spirals into zero effective savings and worse yet stress debt.

The sad part is they are going through their middle age waiting for people to die. They get their payday (inheritance) and are ecstatic as if it was a bonus that just vested or something unseemly like that. Instead of properly grieving the loss of a family member they are juiced up on a temporary fix of dopamines and endorphins because they suddenly have a chunk of free money.

These are grown adults who should know better, who pretend to miss their family member and go through all of the public grieving mechanisms and play the part but in reality their actions speak louder than any words with lifestyle changes, some obvious and some subtle but changes just the same.

I'm a little annoyed at this if you can tell by my tone. We lost my father recently and got a nice windfall (well over 1M) from my parents' home sale. I was close to my father (99 years when he left) and miss him dearly. The funds went directly to Vanguard, DCA into a 500 fund and actually grew 18% so far, a pretty nice return. The annoyance comes from the innuendo and hints that we have somehow had our life-changing financial event and should be enjoying it (materially). Some even ask what I'm doing with "the money" which is also annoying. When I tell them it is in Vanguard and hopefully growing nicely they look at me like I'm not being truthful or something. I tell them I never thought of inheritance as a paycheck, to the contrary it was a reminder of a sad and tragic life event that we have to get through. I know some view this as disingenuous which is also annoying but there isn't much to be done about it. The only real solution would be to tell them the truth about our assets but that would give away the FI game and subject us to all sorts of criticisms for being tight and miserly (we are not, we drive late model cars, have a nice home below our financial level, live visibly comfortable without being flashy, etc.). In my view, we just remain quiet and I've only told one person (a trusted nephew with MBA who understands finances and will most likely keep his mouth shut) and he gets it and is now asking me for advice on how we did it and how to keep it quiet.

Keeping these things quiet take a small amount of discipline and a large amount of foresight. I applaud and admire your approach. As I said, brilliant.

We are of the same opinion. We cannot control our children. Not while we are alive and we have no desire to control them from the grave. Fortunately both are currently reasonably good financial stewards in their own way. We have done our best to prepare them.

If they cannot manage by the time they are in their forties/ fifties then there is nothing we can do for them. They will be on their own as it were. Cannot baby them all their lives. Providing a safety net all of their lives can do more harm than good IMHO.

We let one go into voluntary bankruptcy in the past. No reason for us to fund her creditors. It was the best decision we made. That experience turned the tide and turned our daughter into a very astute business person. Because she had to...sink or swim. We shudder to think what would have happened if we had bailed her out. More of the same probably.

Neither has any idea of our financial situation, nor do they need to. Like you we drive older (2006 and 2007) vehicles. We travel internationally for 8 weeks, twice per year. Plus some last minute travel from time to time. So they must wonder....as do some of our neighbors, friends, and relatives no doubt. We keep personal financial matters to ourselves.

The first cut to our estate will go towards our 4 grandchildren's post secondary edu. After that slice, the rest will be split down the middle. We want to provide the funds for their education no matter what financial situation their parents may be in at that future point in time when each have completed secondary school.

 

[Koolau]

I think since the OP has responded then this thread is finished. No need to keep rehashing and trying to convince someone else to agree with your way or the highway!

You'll get used to it if you hang around for all the fun.


We're all free to remain silent at any time we choose.

 

[imnontrad]

Problems with a trust are - Who will be the trustee? WHo decides how itis invested? How will funds be distributed and when/why? What if the child gets divorced or is sued? What if that child becomes disabled?

Start planning some fantastic vacations and invite them along for some of them. But before you go, state exactly what you are paying for and that everything else is on their own. An example would be the hotel room and $2,000 for food/activities to spend as they wish (or keep).

You could also tell them IN ADVANCE that all of your money is going into a trust and exactly what they will get - as in a percentage, dividends only, etc. Also state what else the trust can be used for (college/tech school for grandkids with a yearly cap) and maybe something like when they have died, the money in the trust all goes to charities that you have selected.