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Thursday, August 24, 2017

The Benefits Of Gifting Through A Trust

Having the ability to give a gift to a loved one is a gift in and of itself. It makes you feel good to know that you are making someone you love happy. It can also be good for your wallet to give generously since gifts are a tax-free way to pass money on to your loved ones.

The biggest downside to gifting is that you might not like what the recipient does with your gift. As a recent question posed to Slate’s advice columnist, “Prudence,” illustrates, it can be heartbreaking when the person you give a gift to squanders it, or acts ungrateful:

Q. Inheritance: Fifteen years ago, my husband and I sold land we owned to a developer for a pretty penny and gave each of four children more than $150,000 each. We told them this was their inheritance and not to expect anything in our will beyond personal items. If there is any money left in our estate after we pass, it will be going to our favorite charities. We asked our financial planner to meet and discuss options with our children, and our daughter “Dora” declined. She and her husband bought expensive cars, took fancy trips, and did not bother to save a penny for their children’s education. We have been contributing to an education fund for each of our grandchildren, but due a hit in the market, there is only around $7,000 for each of them. We have three grandchildren graduating high school this year; only Dora’s daughter will have to take out loans for her education. Dora is upset and wants us to give the collective education fund to her daughter “to be fair.” Her comments have sparked a war with her siblings. Dora is not destitute. My granddaughter is not going to starve in the streets, but she will be going to community college while her cousins go to the universities of their dreams across the country. Dora acts very bitter and refuses to acknowledge any responsibility on her and her husband’s part. It is causing a huge rift, one that my husband and I though we avoided. My husband wants to stand firm and ignore this. I agree with him but it pains me to see my granddaughter pay the price. She is a wonderful girl, and we are very proud of her. Should I do anything? Can I do anything?

A: You can, if you feel so inclined and to do so would not be a financial hardship, pay some of Dora’s daughter’s tuition directly, bypassing her parents entirely. There’s a case to be made for that, especially considering that your granddaughter is in no way responsible for her parents’ reckless behavior. If you decide to do so, however, you should by no means entertain Dora’s ridiculous suggestion that you take away from the collective education fund for your other grandchildren. That money is theirs, and she has no right to suggest you take it away just because she declined to take careful advantage of your generous gift 15 years ago. Remember, too, that if you hold with your husband and stand firm, nothing disastrous is going to happen. You gave Dora a lot of money 15 years ago, have always clearly communicated how much money she could expect from you and when, and Dora’s daughter is already taking steps to minimize her student loan debt by starting at community college. If you decline to send more money her way, she may not have it as easy as some of her cousins, but she’s not going to flounder and perish. Community colleges are a great option, and she sounds like a resourceful kid—unlike her mother.

Although it is too late to do anything to fix this situation, the best advice we have for others looking to avoid a similar scenario is to think about gifting into trusts set up to benefit your loved ones instead of directly to them.

Funders can limit what money that is put into a trust can be used for by the beneficiary. The limits can be indefinite, or they can expire after a certain amount of time has passed or after the beneficiary passes some sort of milestone. If the people who wrote in to Prudie really wanted their daughter to put some of the money they gave her away for her children’s education, they could have set up a trust with that goal in mind.

Because they are so customizable and tax-friendly, trusts have become very popular. This has brought the price of administrating them down in turn. There is no reason not to explore how setting up a trust or two can help you reach your estate planning goals.


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© JS Burton, P.L.C. | Disclaimer | Law Firm Website Design by Zola Creative
477 Viking Drive, Suite 410 , Virginia Beach, VA 23452 | Phone: 757.301.9500
5425 Discovery Park Blvd., Suite 101, Williamsburg, VA 23188 | Phone: 757.301.9500