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Monday, August 18, 2014

Why giving your grown children an allowance may make financial sense

Seniors who are in the midst of their estate planning like to consider all of their options. When they hold an estate that is quite large, one of those options is giving money to the children while the parents are still alive.

This already happens in some families, but most of the time it's not part of estate planning, but a one-time response to a particular situation such as the child buying a home and needing help with the down payment. In other families, the parents give serious consideration to the idea of giving the children some of their inheritance early, but generally they are thinking about a large, one-time, lump sum.

This idea has not gained widespread popularity because the parents don't know how long they will live, or whether they will need funds for long-term care in the future. Given those variables, the idea of giving away huge chunks of money is daunting.

An article I've just read in the Financial Post suggests that it might make sense for parents with excess wealth to give money to the kids on a regular basis, almost like an allowance. The idea is that the parents don't have to part with large sums of money at once, and presumably can discontinue the payments to the children at any time. The parents help the children by enhancing their lifestyle while the parents are still around to enjoy it with them.

Click here to read this story.

Though I like the idea in general, I absolutely must take issue with one point made by the author of the article, Ted Rechtshaffen. Mr. Rechtshaffen states that:

"If you are very likely to be leaving money to your children, probably the worst way to leave the money is still the most common method – through a Will."

I absolutely disagree. The worst way to leave money to your children is not to have a will, followed closely by having an insufficient or overly simplistic will. However, having a solid, well-thought-out, properly drafted will is an excellent way to leave money to your kids. Despite Mr. Rechtshaffen making this one remark with which I take issue, I find this article to be well worth the read. If you are considering the option of giving your kids some of their inheritance while you're alive, please check it out.

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