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Sunday, December 03, 2006

YOU CAN'T TAKE IT WITH YOU, BUT WHAT THEN?

After my reader D.M.'s husband died in 2004, she worried that, when she herself died, the bulk of her estate would go to the state of California instead of to her eight adult children. D.M. is 77 years old, and her assets consist mostly of $100,000 in cash and a house worth about $700,000.

Five of her children make good incomes and live on their own, but two of her daughters and a son live with her in her house. Her son is blind but holds down a minimum-wage job. Her daughters work but, because of a series of unfortunate relationships and events, have outstanding bills that eat up most of their income. Each depends on D.M. for support.

A lawyer wisely advised D.M. to create a trust to protect her assets, but the question troubling her is, what's the right thing to do in terms of dividing her assets among her children?

If D.M. were to die and leave ownership of the house equally to her eight children, it would have to be sold. The three children now living there would be unlikely to be able to afford a new home, and their inheritance would quickly be eaten up by high rents. If the house were left solely to the three children, they could continue living there -- but the other five children would be shortchanged.

"I know it is up to me in the final analysis," D.M. writes, "but should I divide my assets evenly or according to their needs?"

I sometimes joke with my own children that I plan to die broke, thus avoiding any arguments over who gets what when I'm gone. A few years ago I went so far as to give my son-in-law, as a gift, a copy of the Stephen Pollan/Mark Levine book "Die Broke: A Radical 4-Part Personal Finance Plan" (Collins, 1997).

But I'm kidding, of course, and D.M.'s question is one that I regularly receive in various guises from many readers: "Must I treat my children equally when it comes to money, gifts or inheritances?"

The answer, of course, is no. It's your money and your stuff, so you can do with it whatever you want. You owe your children nourishment, protection and so forth when they're young, but the parent/child relationship carries with it no built-in ethical obligation as far as inheritance is concerned.

There are consequences to your actions, though. You have the right, for example, to favor one child over another for no apparent reason, but there's no fairness to such action, and it's very likely to create animosity toward yourself while you're alive and, after you're gone, animosity among your children.

D.M. has a compelling reason to provide for her children at different levels after she's gone, however. Three of her children seem clearly to be more in need. One reasonable solution might be for her to leave her house to the three who live in it and to split the $100,000 in cash among her other five children. If that's what D.M. is inclined to do, she should do so with a clear conscience.

The right thing for D.M. to do, after she decides how she wants to divide her assets after her death, is to talk with all of her children to let them know what she has decided to do. She doesn't need to explain herself or to ask their permission, but simply to let them know what to expect.

And the right thing for each of them to do is to thank her.

4 comments:

Anonymous said...

You dispose of your estate however you wish. I think it is quite common to consider needs above a strict division of assets. And while you own no one anything or any explanations, in the interest of reducing hurt feelings after your passing I think it would be a positive step to outline your plans and reasons.

Wendy Hagmaier
Fullerton, CA

Anonymous said...

I enjoyed your Sunday December 3, 2006 article. However, I am
greatly concerned over the advice for a solution that was given to D.M.

Your column outlined that D.M. has five financially responsible children, two daughters who reside with the mother, and a blind son. Currently the two daughters and the blind son reside with D. M. It is my
opinion that the 7 children be treated equally, and the physically
handicapped child may or may not be treated differently.

I concur that the money is hers and she has no ethical obligations to distribute her money equally to any specific child. She may bequeath all
of her money to a charity of her choice, or have her ashes sent to the moon if she wishes. However, I believe that no child should ever be given preferential treatment solely due to that child’s financial irresponsibility.

The two daughters have shown poor judgment in the past through
choosing poor relationships. They were also likely responsible for the events that have left them financially strapped. This behavior is likely to continue in the future. Through willing the house to her blind son, and
these two daughters, she is forcing him to choose inappropriate roommates. In a few years, the blind son is likely to be financially strapped and homeless.

The son will likely not be able to sell the home without the consent of the other two daughters. The daughters may take out mortgages, second mortgages, and third mortgages on their share. They may choose dangerous
mates that will also have the right to live there. They are likely to not afford any of the utilities, and might not pay for food. The past experience of the daughters has shown that they will be unlikely to afford the taxes, nor will the blind child be able to afford all of the taxes of a
$700,000 on a minimum wage job. The actions of at least one of the
daughters will likely result in the foreclosure. Further, because they can not afford normal maintenance and upkeep the home will be devalued, and the son will receive less in the foreclosure than if the home had been sold
outright in the beginning.

If D.M.’s wishes are to assure proper housing for her blind child, it would be better to seek the advice of her attorney on this specific issue, a tax attorney, and also the advice of a financial consultant. The attorney
should be able to locate services that will provide assistance for the blind child. They may also be able to find governmental assistance for the child to obtain a condominium, alleviating much of the upkeep expenses.

The mother also likely does not know the full financial situations of her other children. The five children may also have financial issues, but work to resolve them on their own, rather than burden their elderly mother.

I completely agree with you that the right thing for each child is to thank their mother for any assets that she wills them.

Unfortunately, past experience for me has shown that while the five financially responsible children will understand should the lawyers and
consultants recommend that additional assistance be given to the blind child, the two daughters residing with her will likely no be so grateful.

Carroll Straus said...

"Anonymous" (longwindedly) wrote, inter alia; "The two daughters have shown poor judgment in the past through choosing poor relationships."

This is not what the "hypothetical" stated. Not is this the sole, or even a fair, inference from their plight. Additionally, the remaining siblings may have made poor choices in their relationships as well. They may (as noted) also be in debt, or might became so of they get divorced in future. (MOST women are in poor shape financially after divorce. this is a fact.)

BUT the comments about joint ownerhsip of the house between the siblings have some merit. There situation may well be the precise opoosite of what the professional pessimist wrote-- the sisters might be excellent caretakers for their brother-- but the situation should be thoroughly thought out. A special needs trust might be indicated.

Alas, many, if not most, lay people in DM's position do not trust lawyers, nor do tthe have the means to compare value between aggressely marketed paralegal and "mill" providers.

But this is not "ethics"-- it's practical and legal. And it can't be resolved by evalauating what DM "should" do. Chances are she will do what's easiest. this is her right, and the results, while predictable in many cases, are not "unethical"-- just suboptimal.

Anonymous said...

Dear Jeffrey,
Are you kidding? You suggested a 77-year-old mother leave her $700,000 house to her two free-spending daughters and her blind son, and the remaining $100,000 to her other five kids.

Let's see. How long will it take the two irresponsible daughters to force the sale of the house and leave their brother with inadequate funds to live on?

Here's a better idea: Put the house AND the money in a trust to be administered for the benefit of the handicapped son during his lifetime. The two daughters could live there free on the condition that they maintain the property, pay their share of expenses and assist their brother as needed. Following his death, the entire estate would be distributed equally among the eight children or their estates.

Not only is this fair, but it refuses to indulge and enable these two women in their bad habits, which you describe as "unfortunate." Unless those "relationships and events" include unavoidable medical conditions, their poor choices in no way put them on a par with the brother's actual need.

Sincerely,

Jackie Hyman
Brea, Calif.