Is aunt obligated to give nephew money intended for education?

Are you obligated to make good on a promise if the person you promised doesn’t hold up their end of the agreement?

Many years ago, a reader we’re calling Rebecca set up an educational savings account (ESA) for her nephew to support his college education. The account stipulates that it is to be used for education-related expenses.

Rebecca’s nephew has made it clear to her that he has no plans to go to college. Since he has chosen not to go to college, Rebecca asks: “Should I still give him the money?”

In a subsequent email exchange, Rebecca clarified that the ESA she set up was a Coverdell ESA, which has its own set of rules and restrictions. I am not an expert in investments, taxes or ESAs such as the Coverdell ESA Rebecca set up for her nephew. Whatever Rebecca decides to do, she should read the fine print of her account or consult a financial services professional so she can fully understand how best to do what she wants to do.

Rebecca’s nephew knows about the ESA she set up for him. She wrote that she told him she would not release any funds to him until he went to college. But she adds: “I doubt he remembers.”

My understanding is the Coverdell ESAs allow for any balances in an account be transferred to another family member younger than 30 to use for educational expenses. Rebecca wrote that she is considering transferring the money to her niece who is graduating from high school in June and scheduled to attend college in the fall.

Rebecca adds that she promised her nephew “a small bit, $1,000” even if he doesn’t use it for college. If she takes the $1,000 from the ESA and it’s not used for educational purposes, she may face a penalty and be obligated to pay taxes on it. Again, I’m not a financial planning expert, so Rebecca should check to make sure that she doesn’t do anything that gets her into an unexpected financial tangle.

If Rebecca made clear to her nephew that the funds she set aside were only to be used for his college education, she should feel no obligation to give him the money for some other purpose. It’s unclear if she put a time limit by which he must use the funds. If she didn’t, she could decide to tell him that the money will be there to cover some educational expenses when and if he decided to go to college, although she should check to see by what age the money needs to be used.

Before she makes any promises to her niece, the right thing is for Rebecca to decide what she plans to do with the funds and her nephew and to make that clear to him. While he might be disappointed, because the account was always set up as an education savings account, the use of any funds from it were always clear.

Jeffrey L. Seglin, author of The Simple Art of Business Etiquette: How to Rise to the Top by Playing Nice, is a senior lecturer in public policy, emeritus, at Harvard's Kennedy School. He is also the administrator of www.jeffreyseglin.com, a blog focused on ethical issues.

Do you have ethical questions that you need to have answered? Send them to jeffreyseglin@gmail.com. 

Follow him on Twitter @jseglin

(c) 2024 JEFFREY L. SEGLIN. Distributed by TRIBUNE CONTENT AGENCY, LLC.

If gift makes you uncomfortable, should you accept it?

Is it inappropriate to accept a gift for doing what you believe to be your job?

For the past decade or so, a reader we’re calling Valerie has regularly shopped at an independently owned clothing store located on the main street of the town where she lives. Valerie had gotten to know the owner of the store who regularly chatted with her when she visited. The owner knew that Valerie was a mental health counselor who worked at a small practice in a neighboring community.

On a recent visit, the owner asked Valerie if she had a moment to speak about a personal matter. The two of them walked to a quiet corner of the store where other customers and clerks could not overhear. The owner told Valerie that the pressure of trying to keep her store afloat and the employees compensated during the pandemic had taken their toll. A few employees ultimately moved, but the owner indicated that the store and its employees seem to have rebounded well.

Where the owner could use some help, she confided in Valerie, was with her personal relationship to her partner whom she had been living with before the pandemic began. Without providing many details beyond the fact that stress had affected their relationship, the owner asked Valerie if she might be able to recommend a mental health counselor who could work with her and her partner. Valerie told the owner she would be glad to recommend someone and within a few days she recommended some names to the owner.

About two months later, when Valerie was shopping in the store, the owner came over to thank Valerie and to let her know how well both her relationship to her partner and to the counselor Valerie recommended were going.

“Thank you,” the owner said to Valerie. “I owe you.” Valerie acknowledged the thanks, but then the owner made it clear that she wanted to give Valerie an item from the store. Valerie thanked her for the offer but assured her she was only doing her job. The owner persisted, but Valerie held firm.

“It seems like a conflict to me to take something for connecting her to a therapist,” Valerie told me. “Am I wrong to feel uncomfortable taking something? Was I rude to decline the offer?”

I don’t pretend to know what kind of code of ethics Valerie has agreed to in her line of work. It strikes me, however, that while she might not be engaged in any real conflict since she is not the owner’s therapist and it was unlikely she would only suggest a good therapist if the owner gifted her a blouse she had been eyeballing, Valerie was right not to accept something that made her uncomfortable.

There is nothing rude about thanking the owner for the offer and declining. Knowing that the owner and her partner were able to get back on stronger footing thanks to Valerie’s suggestion may be the only gift that Valerie wants or needs. If she makes that clear to the owner then she’s done the right thing.

Jeffrey L. Seglin, author of The Simple Art of Business Etiquette: How to Rise to the Top by Playing Nice, is a senior lecturer in public policy, emeritus, at Harvard's Kennedy School. He is also the administrator of www.jeffreyseglin.com, a blog focused on ethical issues.

Do you have ethical questions that you need to have answered? Send them to jeffreyseglin@gmail.com. 

Follow him on Twitter @jseglin

(c) 2024 JEFFREY L. SEGLIN. Distributed by TRIBUNE CONTENT AGENCY, LLC.