Gifts, Trusts, and the "Generous" Parent
I met with a new client last week, one whose situation is all too common. My client's mother is generous -- to a fault. Mom has enough money to live comfortably, but she never says no to anyone, especially my client's siblings. She is paying the mortgages for three of her children (all adults, all unemployed), and the children have become increasingly aggressive in asking for money and property. Mom even deeded her house to one of the children, and then took out a home equity line of credit for the child!
My client wants to make sure Mom is taken care of, but he's not interested in a scenario where Mom receives an inheritance, and then gives all of it to his siblings.
I offered two pieces of advice to my client:
1. Consider leaving money to Mom in trust. While she is not really a "spendthrift" as that word is usually defined, her situation is such that she may not benefit from any direct gift you make to her. The trust should be entirely discretionary (income and principal to Mom for her health and support in reasonable comfort as determined by the trustee); upon Mom's death, the trust can pass to other beneficiaries.
2. Be careful about getting involved in Mom's affairs. From the facts described above, it's clear that Mom has made a mess of things. In addition to the fact that Mom transferred her home to her child and THEN took out a loan on it, I'm willing to bet that no gift tax return was ever filed, and that Mom didn't consider that her child can now kick her out of her home. But this isn't my client's mess, and I believe he should only get involved if Mom asks for his help. My client also should be circumspect about preventing Mom from making gifts to her children in the future. The big black-and-white question -- are my client's siblings taking advantage of Mom? -- is a hard one to answer in real life, with its varying shades of gray. If Mom is incapacitated, or is being bullied into making the gifts, that's one thing; but what if Mom just wants to give some assistance to her children? My client may consider this unwise and misguided, but should allow Mom to make her own mistakes, like any other adult.
