In Part I of this discussion, we addressed some of the sources of conflict arising with gifts to family members, particularly through an estate plan at death. Communication of the details of AND the reasoning behind the plan is often successful at defusing conflict and ensuring at least an uneasy peace among competing claimants.
A significant problem may arise, however, where a rational plan of gifting is either not understood or not accepted by some family members. A case in point involves a family with well-meaning parents and three adult children. Each of the children has started out equally in terms of college education and receipt of some family gifts. However, due to life choices, their situations are very different. One child, married with one child, declined a rent-free home offered by the parents (who own multiple properties) because of the high cost of utilities. Instead the child and family reside with the parents at the parents’ expense. That child and spouse recently sold their out-of-town home (down payment furnished by the parents) and now expect the parents to fund a new home.
The second child, residing out of state, recently decided to obtain a divorce from the spouse and because of debt and lack of savings is depending on the parents to fund a new home in an “exclusive” neighborhood. And the third child together with a spouse is raising four children in a home the couple owns and paid for themselves. Needless to say, the third child has finally realized that any inheritance from the parents is rendered increasingly unlikely due to the greed of the siblings and the spinelessness of the parents.
Sometimes, then, a client’s planning needs to go beyond communication and generosity to understand fairness and the need to strike a balance in gifting. In the case under discussion, the parents actually have placed themselves in an untenable position, spending money they may well require during their own retirement, especially if they live to or beyond their life expectancies. They also have enabled the first two children in bad behavior – too much spending, no saving, other poor choices – by not allowing them to accept the consequences of their choices while at the same time hurting the third child by the unequal treatment evidenced by the continuing gifts to only two of them.