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Wednesday, May 12, 2010

Is there a cure for Affluenza?

"Affluenza" refers to the effect on young people of inheriting too much money at too young an age. The symptoms include reduced ambition, lack of interest in working for a living, an inability to control frivolous spending and a failure to obtain any employable skills or education. A general rule is that the younger the heir of the money, the more severe the symptoms.

Parents are aware that a young person need not inherit multi-millions of dollars to catch affluenza. To a teenager who doesn't know the cost of houses or tuition, and hasn't even thought about boring adult stuff like life insurance and saving for retirement, even a reasonably large sum of money may seem like a gold mine. Parents want to ensure that they vaccinate their children against the affluenza bug.

What can parents do?

Well, there's always teaching them financial literacy while they are young, of course. But as I'm a Wills and Estates lawyer and not an expert on education, I'll confine my comments to what I know best. Here are some ideas that parents can use in their Wills:

1. Make sure that you do have an up-to-date Will, and that you do not name someone to be your executor if that person is too young to handle it. It's a lot of work and carries personal liability.

2. State the age at which your child or children should inherit the money. Otherwise they will inherit all of it the day they become adults.

3. Stagger the ages at which your child inherits, e.g. give 1/3 at age 18, 1/3 at age 21 and the balance at age 25.

4. If a child has an addiction or social problems that would interfere with his or her ability to safely look after money, put his or her share in a trust and have it looked after by your executor/trustee. You can set the terms of how much money they get, or for what purposes they are allowed to have money.

5. Don't be afraid to set up different arrangements for different children. Some may need a trust or staggered distribution while others may not.

6. Build in incentives. For example, if your executor is holding your child's share in trust to age 25, you could say in your Will that tuition and living expenses are to be paid starting at age 18 if the child is attending college full-time (and attaining passing grades - we don't want to create any perpetual students!).

7. If you've appointed a guardian for minor children with a monthly stipend to the guardian for the child's expenses, allow for that living arrangement to continue past age 18. If the child is living in a comfortable, loving household with the guardian, he or she would be better off staying there than having to move out simply because he or she turned 18. You could arrange in your Will for the monthly amount to the guardian to continue up to age 21 if your child wants to keep living there.

8. Don't try to control negative behaviour by setting unreasonable (and possibly unlawful) conditions on your children. For example, don't say that your daughter can only inherit if she stops smoking, or your son can only inherit if he never marries that horrible girl he is dating. These clauses don't hold up in law.

Consider having a brainstorming session with your estate-planning lawyer to come up with a personalized plan that will bring you peace of mind that you have done all that you can to ward off the affluenza epidemic.

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