Gifting assets to adult children is a tricky business. Of course you want to be fair, but it’s not so easy to know what that is in every case. If the children have vastly different needs, splitting the assets evenly may not actually be fair. And what makes this situation so difficult is that there is a lot at stake. If you don’t handle estate planning correctly it can tear even the most loving families apart. I saw this happen recently to some people I am very close to.
The family has 4 adult children. Two are very successful, one is barely getting along financially (because of her own bad decisions) and the other adult sibling has special needs. The parents were in a real bind and didn’t know what to do. They figured that the kids who were well-off didn’t need the money, but they didn’t want them to feel left out. In addition, they wanted to help the struggling child but their main worry was their adult child with special needs. They had no idea how to reconcile all these competing needs.
As a result, they decided to just help the kids that needed the money when they could. This seemed like a reasonable approach and very loving. But they didn’t clearly spell out what they wanted to see happen to their money once the parents died. As a result the children went at each other like starving hyenas once the parents passed away. It was ugly.
The two successful kids wanted to use the remaining assets to help the special needs sibling while the struggling child wanted her share right then and there. Since the parents didn’t really communicate what they wanted, the situation deteriorated into a knock-down drag-out fight with everyone losing. It ripped the family apart and the siblings stopped talking to each other.
Of course, this is the last thing any parent would want. The question is, how can you prevent such a tragedy?
In my experience, there is only one solution and that is to draw up a good estate plan and talk about your wishes with your adult children now while you still can. I realize that this can be uncomfortable and you may not have all the answers. But the good news is these constraints don’t have to stop you. Here’s how:
1. Figure Out What You Want First
You may not know exactly what you want to do with your money but you probably have a good ballpark idea. What is your main objective? Is it to help each overcome the unique hurdles your children face or is to just to split the money up equally regardless of need?
At a minimum, speak with your spouse of course, but don’t stop there. Consult with a trusted friend or advisor and get their input. Find out what other people in similar situations did and how it worked out for them. This move will help you get much needed perspective.
2. If There Is A Dilemma – Get Input
After you figure what is most important to you and your spouse and consult with other people, you still may be in a pickle. You may not have the same problem the people I talked about above had, but chances are high each of your children have very different financial needs. If so, talk to each of the kids privately and ask for their input. Ask what they would do if they were in your shoes. Be completely honest and blunt. If you feel torn, tell them your truth and ask what they would do.
This move will really open your eyes as long as you listen carefully to what your children say. First, they’ll tell you what they really think (hopefully) so you won’t have to guess anymore. Maybe they don’t really care about the money and you don’t really have a problem. The only way to find out is to ask.
In addition, you’ll gain insights into their attitudes about money, their own future, how much responsibility they take for their own situation and how much they care about their siblings.
As a result, you may get a new perspective on the problem with a few novel approaches. At the same time, you might learn something about the kids. You may find some are very loving and giving but others are unreasonable and/or irresponsible. Sadly, you might conclude that no matter what you do, one or more of the kids aren’t going to accept what you do no matter how fair you think your approach is. They may just have a vastly different view of finance than you. That could impact how much money you want to leave them as well.
If that happens, it’s sad of course. But if you reach this point, at least you know that you did your best. And if there are any hard feelings about the split afterwards, hopefully this child will blame you rather than harbor a resentment towards their siblings.
3. Be Flexible But Take Action
Once you get input from trusted advisors, your spouse and your kids, take it all in. Use this information to update your estate plan. But don’t worry – you can always change your mind.
Some people worry about not getting this perfectly right and do nothing as a result. That was the reason the couple I described above didn’t take any action; they were afraid of getting it wrong and didn’t want to make problems for the children later on.
But it was their inaction that created the rift. Had they done their estate planning and discussed those plans with their children, there would have been less ambiguity and fewer reasons to fight.
You can benefit by other people’s bitter experience. Even if you aren’t 100% sure of what to do, do the best you can and realize you can always change things down the line. Talk to your kids now and discuss the challenges. Speak to them every year to find out if their situation or attitudes change – that might impact how you want to split up the assets.
Have you done your estate plan and shared it with the kids? Why or why not? When you spoke to them, did it change your mind about anything? What was it?