Many financial planning clients face a common dilemma within their families. It is not about how to invest their money or plan for their retirement or even for passing on their assets and values. The dilemma focuses on how the client can help ensure that a family member is provided for but prevented from wasting what is given to them.
This issue is personified by the elderly parent who has no money sense, falls for every scam, gambles and spends money he or she does not have and then comes asking your client – their child – to support that behavior. It is equally demonstrated by the child who dabbles – or worse – in drugs, alcohol and other expensive and self-destructive addictions or even the family member who is constantly buying the latest toy or project and never thinks about tomorrow.
A common thread in each case is the desire of the client to be certain that their problematic relative is going to have the true basic necessities – food, shelter, medical care, clothing – while at the same time not being able to access the client’s money and generosity to fund the behaviors that cause so much damage. Obviously, the client cannot simply give money to that person and it is likely that the money cannot really be given to someone else for the purpose of helping the relative because of all the potential issues that might arise. That other person might be susceptible to the pleading of the relative and release money which is wasted or might themselves waste money or lose it to their own creditors.
One of the best approaches involves the creation and funding of a trust for the benefit of the relative, allowing distributions directly to service and care providers, and making distributions only for specified expenses. The trustee should be an independent person or entity who will adhere to the requirements of the trust and wishes of the client expressed in the trust. The trustee should not be one likely to be in the position of providing services or care to the relative and, other than the client during his or her lifetime, should probably not be a family member.
The elegance of such a trust is its ability to provide for the relative while not supporting the undesirable behavior that relative has engaged in and may continue to exhibit. Distributions to the relative may be prohibited entirely or premised on the relative having achieved objective goals such as being drug free for a period of time. There is a great deal of flexibility available in the drafting of this type of trust so a client may be confident that his or her goal will be accomplished.