I thought the following piece from a column by Quentin Fottrell for MarketWatch 7/1/24 was a great example of what can happen in families regarding wills, estate planning, and the like. Many individuals put off writing their will because they don’t want to make decisions related to family members, so they don’t do it or push it off on others. Read on for this poor woman’s plight with a mother attempting to do just that.
“Dear Quentin,
My mom has made a longstanding “joke” that they’re leaving everything to me and then I can figure out what to give my brother based on what feels right. I’ve always ignored it, assuming they’d actually create a will or trust that outlined their actual wishes. But my parents are aging and they recently brought it up again. I pushed back and they doubled down.
This feels like a wild approach to estate planning. I told my mom that I would just give him a lump sum to do with what he pleases and she said I couldn’t because he’d just spend it all. She clearly has opinions about how she wants it to work and it seems she wants me to set up some kind of allowance for him? Their estate will not be insubstantial either, with property and a sizable investment portfolio.
My brother and I don’t have a great relationship, and I’ve always been the responsible one. I think my mom is doing this to force us to maintain a relationship. Outside of the negative relationship impacts of doing something like this, what are the tax and financial implications of receiving an estate and then passing on a large percentage of it to someone else?
Are there other approaches I could suggest to them or steps to take if they continue to insist I take everything and dole out some portion to my irresponsible brother?
Signed: Utterly Perplexed & Annoyed
Dear Utterly,
Your mother and brother need to grow up.
It sounds like your parents have been managing your brother’s life into adulthood either by subsidizing him or withholding gifts in order to ensure he gets his act together (in their eyes). And now they want you to carry on that grand tradition. You’re right to tell them that they can organize their estate plan in such a way that absolves you from continuing to mollycoddle your brother. Plus, you are siblings. You did not sign up to parent him for the remainder of your life.
You have annual tax-exclusion limits and a federal lifetime tax-exemption limit. You can, in 2024, only give your brother $18,000 annually without filing a gift-tax return, according to the Internal Revenue Service. The federal estate-tax threshold for 2024 is $13.61 million for individuals and $27.22 million for couples, so you would not need to pay federal estate tax on amounts below that — and even if you did, it would only be due after you die.
Talk to your mother about setting up a trust — there are two main kinds, revocable and irrevocable. As the latter’s name suggests, any assets deposited in that trust must be effectively and irrevocably transferred to the trust in order to be protected. Your mother would in effect have to give up control of the trust property to the trustee, who must act in accordance with the terms. But it also protects it from creditors and removes certain assets from the taxable estate.
Your mother could create a living trust for your brother. “For example, when estate planning for an irresponsible child, you can say that an heir will get no access to their funds until they hit, say, 40,” James L. Cunningham, a California-based lawyer, writes in his book “Savvy Estate Planning.” He adds: “Along the way, prior to age 40, the money can be dripped out to them on an as-needed basis, in a controlled manner by the assigned trustee.”
“What does such an arrangement accomplish? Well, for the undermotivated child, it might force them to work, while giving them really useful boosts at key moments in their careers,” he says. “You may be asking yourself, ‘If my son gets the money right away, will he just sit around smoking dope and playing video games all day?’ I have plenty of clients who tell me their kids have reached 50, but they still can’t be trusted to handle large amounts of cash.”
Family systems versus family values
To help you understand what you are dealing with, the therapist and author Susan Forward’s seminal book, “Toxic Parents,” explores the value systems, ideology and, yes, lifelong responsibilities that parents pass down to their children, often unconsciously. Families can be a source of love and support, but family members can also condition each other to behave in a certain way based on intergenerational dysfunctional relationships and unhealthy dynamics.
“Children who are not encouraged to do, to try, to explore, to master, and to risk failure, often feel helpless and inadequate,” she writes. “Overcontrolled by anxious, fearful parents, these children often become anxious and fearful themselves. This makes it difficult for them to mature. Many never outgrow the need for ongoing parental guidance and control. As a result, their parents continue to invade, manipulate, and frequently dominate their lives.”
“Most adult children of toxic parents grow up feeling tremendous confusion about what love means and how it’s supposed to feel,” she adds. “Their parents did extremely unloving things to them in the name of love. They came to understand love as something chaotic, dramatic, confusing, and often painful — something they had to give up their own dreams and desires for. Obviously, that’s not what love is all about.”
Inheritance and love should not be used as leverage to control your kids. “Loving behavior doesn’t grind you down, keep you off balance, or create feelings of self-hatred,” Forward says. “Love doesn’t hurt, it feels good. Loving behavior nourishes your emotional well-being. When someone is being loving to you, you feel accepted, cared for, valued, and respected. Genuine love creates feelings of warmth, pleasure, safety, stability, and inner peace.”
If you and your brother don’t have a good relationship, it will only worsen if you become his financial guardian. For this reason, I would urge your mother to appoint an independent trustee to oversee any trust she sets up. It would also help isolate you from emotional leverage and constant badgering (“I need $10,000 to pay off a gambling debt,” or “I need $50,000 to pay my mortgage,” or “I have a great business opportunity — please don’t stand in my way!”).
As for your brother, your personal and financial lives separate.”
I wholeheartedly agree with the author that “Utterly” should make every effort not to become her brother’s guardian. Talking with an experienced estate planning attorney and, ideally, getting her mom to speak with that attorney would be helpful. We all would love to have well-functioning, loving families where everyone “behaves” and there isn’t any discord. But in reality, many families suffer from problems, just like “Utterly’s. I have decades of experience working with clients in various family situations, many good and many troublesome. Working together, we can develop an estate plan that works for you and your family, no matter what is going on. I’d be honored if you’d call me to schedule a meeting to discuss your unique situation. I’m confident I can help. I can be reached through my website or at 513-399-7526.
Source: Marketwatch, by Quentin Fottrell, 7/1/24