Skip to main content

Advertisement

Advertisement

Thinking about giving money to your adult children? Think again

NEW YORK — When Thomas Gilbert Jr received a 30-year sentence in September for killing his father over a money dispute, it ended a four-year-long case that sent a chilling warning to any parent who ever considered giving money to an adult child.

Thinking about giving money to your adult children? Think again

Legal experts and estate planners caution parents to carefully scrutinize the need for the money and how it could affect the child’s long-term ability to live, work and succeed in the world.

NEW YORK — When Thomas Gilbert Jr received a 30-year sentence in September for killing his father over a money dispute, it ended a four-year-long case that sent a chilling warning to any parent who ever considered giving money to an adult child.

Gilbert, the son of a Manhattan hedge fund manager, was raised with a silver-spoon lifestyle, attending the elite Buckley School for boys in Manhattan, the exclusive Deerfield Academy in Deerfield, Massachusetts, and Princeton University, but he had trouble holding down a job after graduation. So his parents gave him a monthly allowance, in addition to covering the U$2,400-a-month (S$3,257) rent on his apartment in Manhattan’s Chelsea neighborhood.

When his father cut the allowance, his outraged son, then 30, took a gun and fired it into his father’s head at point-blank range.

“You want to support your child, but if your child is just serially not self-sustaining, what do you do?” said Ms Christina Baltz, partner in the private client and tax team at Withers LLP. “It’s a real dilemma.”

While the Gilbert case is an extreme example, it speaks to a common quandary for parents with money to spare: When and how much should they give to an adult child who comes asking for money — especially one who is able-bodied and well-educated? How long should any financial help last? And should it be a gift, loan or advance on an inheritance?

Legal experts and estate planners caution parents to carefully scrutinise the need for the money and how it could affect the child’s long-term ability to live, work and succeed in the world.

“Money is a metaphor for love and control,” Ms Baltz said. The biggest challenge is providing enough money to help a child through a challenge but not giving to the point where it kills the person’s motivation to work and succeed.

If money is needed for an urgent matter — like emergency surgery, medical bills, a lost job, house foreclosure or costly divorce — it’s a no-brainer: Experts said parents should help in such situations as long as they can afford it.

“You’re rescuing them temporarily. You’re not indulging them forever and putting them on your payroll,” said Ms Susan Covell Alpert, author of “Later Is Too Late: Hard Conversations That Can’t Wait” and “Driving Solo: Dealing with Grief and the Business of Financial Survival.”

But even then, parents should do a little due diligence first.

“You have to be careful not to be taken advantage of by a child,” said Mr Les Kotzer, a wills and estates lawyer at Fish & Associates in Thornhill, Ontario, and co-author of four books and an audiobook on wills, including “The Wills Lawyers: Their Stories of Money, Inheritance, Greed, Family and Betrayal.”

In an interview and in his book, Mr Kotzer recounted the story of an older couple whose only child had a college degree in geology but struggled to find work. Even after taking a job in a small mining town hundreds of miles away, the son continued asking his parents for money to cover housing costs, prescriptions for illnesses he said he and his wife had, and bills related to their disabled child.

But years later, when the elderly parents were finally able to make their first surprise visit to the town, they were shocked to discover a lavish, well-furnished home, shiny new cars in the driveway and a live-in nanny, who told them the couple was in Puerto Rico for a 10-day cruise.

The young parents were healthy, both had high-paying jobs, and their child was not disabled. The parents felt duped and immediately cut their son out of their will, Mr Kotzer said.

Generally, parents making bad money decisions fall into one of two categories, experts said: Hoarders and cash cows.

Hoarders take “tough love” to the extreme: They refuse ever to give an adult child money, insisting that the child work multiple jobs to pay for college or medical bills. Then, when they die, they leave their entire estate to an adult child who might no longer need it.

Experts recommend that parents give their children monetary gifts while they’re alive, rather than leaving everything in a will. This helps adult children when they need it most, and it can reduce inheritance taxes when a parent dies.

Right now, estates valued higher than US$11.4 million face a 40 per cent federal tax, said Ms Sarah Wentz, a partner at Fox Rothschild in Minneapolis. State inheritance taxes are separate and have different rules that vary from state to state. But IRS rules allow people to give a tax-free gift of up to US$15,000 per person per year to as many people as they want.

On the flip side are cash cows: These are the parents who, because of pressure or guilt, hand over money every time an adult child requests it — even if it’s for frivolous reasons, like taking a trip or buying the latest high-tech gadget, and even if they can’t afford it.

“Don’t give anything away that you are going to miss, can’t afford, may need or puts you into poverty,” said Mr Jeffrey Condon, co-founder of Condon and Condon law firm in Santa Monica, California, and co-author of “Beyond the Grave: The Right Way and Wrong Way of Leaving Money to Your Children (and Others)” and “The Living Trust Advisor.”

About 90 per cent of liquid assets are spent during the last 10 per cent to 20 per cent of a person’s life, largely because of medical expenses, Mr Condon estimated. He recommends that parents never give away more than 10 per cent of their liquid assets.

Sometimes a loan, rather than a gift, is more appropriate.

Experts recommend that parents draw up a promissory note that complies with IRS rules — rather than relying on a handshake — when offering a loan. Otherwise, the loan can quickly be deemed a gift if it isn’t repaid, Ms Alpert said.

Gift or loan, there’s no guarantee that children will give money back if a parent later needs it, Ms Wentz cautioned. She recalled one client who gave US$150,000 to each of the couple’s five children, with the understanding that if the parents ever needed money for medical care, the children would give the money back.

But when the surviving spouse incurred medical conditions that required round-the-clock care, two of the five children refused to return the money to allow their father to receive care in his home. They said it would be cheaper to put him into a nursing home.

Giving a child money for certain milestones, like college graduation, marriage or the birth of children may seem like a good idea on paper. But it can stoke feelings of anger and resentment in children who don’t marry or can’t have children.

Experts recommend that parents be open and fair when giving money to adult children. If money is given to one child, the other children should be informed and promised similar monetary gifts either now or at the time of inheritance. THE NEW YORK TIMES

Related topics

money inheritance murder

Read more of the latest in

Advertisement

Popular

Advertisement

Stay in the know. Anytime. Anywhere.

Subscribe to get daily news updates, insights and must reads delivered straight to your inbox.

By clicking subscribe, I agree for my personal data to be used to send me TODAY newsletters, promotional offers and for research and analysis.

Aa