Balancing an advance on kids' inheritance

[Bigdawg]

My kids are (DD) 28 and (DS) 31. Both married and doing well. I have told them numerous times. My love is unconditional. My wallet on the other hand. They know that if they do the "right" things, they will be rewarded. We don't keep score but give where we can. New tires for cars, plane tickets. Pay for everything when we are with them somewhere. As the long-term picture gets clearer, we plan to give larger and larger gifts each year at Christmas. Currently at $500 for each plus another 5 for their spouses. 2024 should see $1000 each.

 

[Happyras]

The way my dad did it was he loaned me money for the down payment with caveats in the loan document that if I had divorced the my (still ) husband would not get the home equity of the loan value. The loan was repayable on dad's death.

So my portion of the inheritance was reduced by the zero interest loan.

That was a little risky making a zero interest loan, as the IRS requires you to charge their minimum rate or it is implied for taxable income to the lender.

I think I will start a separate thread on my issue, but so far I have gifted to one DD and SIL, for their home and gifted and loaned to the other DD and SIL, making certain to follow IRS rules.

We now are considering a more major change, allowing our DD and 3 grands to take over our 7 acre property, and move to a 55 plus community. We would still own in the trust and we would still have use of barns and shop spaces etc. Boy did that raise some concerns.

 

[WhenIsItTime]

We knew when one of our siblings got money from our parents when we unexpectedly got a check from them out of the blue.

You should give your kids the same amount of money at the same time. If one doesn't need the money, then deposit it in a brokerage account in their name, in a S&P500 index fund.

I have 2 kids. One mature and driven. The other younger, less mature, and drive undetected to date. Not sure where I stand on fairness approach. With that said...

Unless twins, you are not the same age. Could argue the gifts should be age based. Why should the youngest child get gifts earlier in their life?

 

[MissMolly]

Unless twins, you are not the same age. Could argue the gifts should be age based. Why should the youngest child get gifts earlier in their life?

Because you won't be around as long for them as you are for oldest child.

 

[Route246]

One thing all of us who have the means (FI, I mean), we have to have the correct theory of mind for those heirs who are not FI. I've been warned multiple times about advances and gifting as it can demotivate but worse yet it can setup an expectation of entitlement, in the heir's mind this is free money, something for nothing, born on third base type lottery winnings. I've been warned to BE CAREFUL what I do as there are many ways for this to go wrong.

Money changes some people and you never know who those people are until they are confronted with a windfall, especially an unexpected windfall. I wish there was a way to gift money to heirs well ahead of time that would be locked up until they reach retirement age like SS or a pension. It has to be locked up so they can't get to it before they are well into their 60's. That would allow them to live their lives "normally" and still have to work for a living.

A friend gave his 4 kids $1M when they turned 30. Let's just say this didn't turn out the way he expected and he immediately saw changes in their attitudes, motivation and spending habits. He's quite wealthy but lives very much below their means. He made 4 problematic offspring worse in various subtle ways. Unbelievable buyer's remorse in this case.

 

[Happyras]

I've been warned to BE CAREFUL what I do as there are many ways for this to go wrong.

... It has to be locked up so they can't get to it before they are well into their 60's. That would allow them to live their lives "normally" and still have to work for a living.

That is very easy to do with either an intentionally defective grantor trust, or a simple irrevocable trust structure which defines disbursement etc.

 

[RetiredHappy]

One thing all of us who have the means (FI, I mean), we have to have the correct theory of mind for those heirs who are not FI. I've been warned multiple times about advances and gifting as it can demotivate but worse yet it can setup an expectation of entitlement, in the heir's mind this is free money, something for nothing, born on third base type lottery winnings. I've been warned to BE CAREFUL what I do as there are many ways for this to go wrong.

Money changes some people and you never know who those people are until they are confronted with a windfall, especially an unexpected windfall. I wish there was a way to gift money to heirs well ahead of time that would be locked up until they reach retirement age like SS or a pension. It has to be locked up so they can't get to it before they are well into their 60's. That would allow them to live their lives "normally" and still have to work for a living.

A friend gave his 4 kids $1M when they turned 30. Let's just say this didn't turn out the way he expected and he immediately saw changes in their attitudes, motivation and spending habits. He's quite wealthy but lives very much below their means. He made 4 problematic offspring worse in various subtle ways. Unbelievable buyer's remorse in this case.

You can buy them deferred fixed income annuities that start at a future date. My son is 37 and I intend to buy about $1M in annuities (taxable funds) to start paying when he turns 50 or 55, another couple which starts 10 and 15 years later. He will never have enough money to retire and this is a way to ensure that he has a comfortable retirement.

 

[Stormy Kromer]

This one sure hits home. My dad was going to give my brother dollars to help him buy a home and called me to talk to me about it. Though I was totally okay with it, I missed the part of "advance on his inheritance" and told him if it was a loan, he needed to charge interest. He never corrected me. Three days later, I called to find out how it all went down and the amount and he said he was giving him $200k. I lost it as I didn't know he was giving it to him. Argh. $200k was 25% of my parents liquid net worth. They were 85 at the time. I told him I didn't think he could afford it and he decided to give him $100k and loan him the rest if he needed it. My dad told my brother that I didn't think they could afford it and I did not hear one word from my brother asking me why I thought that (I live near my parents, my brother lives far away so I have more insight into what is going on). I'm sure people will roast me on here because it is not my money but you need to understand that my parents have never given us money. Never. They are now 87 and need every penny they have because my mom has dementia and will probably need to move into a care facility next year.

Dad offered me $100k and I told him no. He needs to keep everything he has. If they run out of money, I hope my brother knows that he is going to have to provide the first $100k!

I sure won't roast you.

Your brother was out of line. You were trying to protect your parents.

 

[Joylush]

You can buy them deferred fixed income annuities that start at a future date. My son is 37 and I intend to buy about $1M in annuities (taxable funds) to start paying when he turns 50 or 55, another couple which starts 10 and 15 years later. He will never have enough money to retire and this is a way to ensure that he has a comfortable retirement.

That’s might be a good solution for me and my spendthrift son. I have zero qualms gifting to my financially responsible daughter and would like to gift equal amounts to her financially irresponsible brother in a way that might protect him and not enable more bad decision making.

Is there a name for this type of annuity or a recommendation for who offers them? I’ve only looked into USAA’s annuity offerings and there seems to be only deferred options or an immediate option. I don’t know that they have a deferred product which automatically converts to an immediate annuity at a predetermined future date.

 

[RetiredHappy]

That’s might be a good solution for me and my spendthrift son. I have zero qualms gifting to my financially responsible daughter and would like to gift equal amounts to her financially irresponsible brother in a way that might protect him and not enable more bad decision making.

Is there a name for this type of annuity or a recommendation for who offers them? I’ve only looked into USAA’s annuity offerings and there seems to be only deferred options or an immediate option. I don’t know that they have a deferred product which automatically converts to an immediate annuity at a predetermined future date.

immediateannuities.com I bought 2 deferred fixed income annuities from them. You can put in numbers on the website and run to your heart's content.

 

[Texas Proud]

Recently read an article about how many parents are paying expenses for their older adult children... and it seems to be that it is a disservice to them...


IIRC the term was Snowplow parents.... trying to remove all obstacles in the way of their kids...


My son is 25, married and they make good money and can afford what they need... no reason for me to pay any of their bills...


DD is in college and I still pay for most of her expenses but there is a limit and she knows about it...



We did buy them plane tickets and paid for housing or part of housing for my DWs birthday as she wanted them to go with us to Hawaii... it was a gift for her as neither kid would have been able to pay the full amount... we had a BLAST!!!

 

[Joylush]

Recently read an article about how many parents are paying expenses for their older adult children... and it seems to be that it is a disservice to them...


IIRC the term was Snowplow parents.... trying to remove all obstacles in the way of their kids...


My son is 25, married and they make good money and can afford what they need... no reason for me to pay any of their bills...


DD is in college and I still pay for most of her expenses but there is a limit and she knows about it...



We did buy them plane tickets and paid for housing or part of housing for my DWs birthday as she wanted them to go with us to Hawaii... it was a gift for her as neither kid would have been able to pay the full amount... we had a BLAST!!!

I don’t think the folks here are being snowplow parents. At least in my case it’s not about removing obstacles. It’s more about wanting to find something to spend money on to reduce the size of my estate. Why not give while you can so you can do the most good?

That’s the problem. Making sure you have enough and aren’t giving with negative consequences to either side.

 

[Texas Proud]

I don’t think the folks here are being snowplow parents. At least in my case it’s not about removing obstacles. It’s more about wanting to find something to spend money on to reduce the size of my estate. Why not give while you can so you can do the most good?

That’s the problem. Making sure you have enough and aren’t giving with negative consequences to either side.

I have no idea about you, but some here are snowplow... I have no problem with that as they can do whatever they want with their money... I was just passing along a new term that I recently read...


BTW, I have a sister who is one... but both her and her husband have pensions and SS that way more than cover their spending... as she says every once in awhile "I have to find places to spend money"... and they do, like renting a house at different places a month at a time... bought a new car because they were tired of the old one but it was not that old...


OH, they also spend a lot on their grandkids.... but that is a lot more normal IMO...