How would you handle this situation with a teenager?

[snickelfritz]

People directly involved ask me CONSTANTLY if they are making the right decision. I see both sides.

 

A child loses a parent when they are young. The parent left a life insurance policy with the child as the sole beneficiary. This means they get it when they turn 18....no restrictions.

 

This child recently turned 18. Rebelling. Wrecked some vehicles while drinking.

 

Remaining parental figures have decided not to tell child about money that was left by deceased parent. A significant amount of money. Think child will blow the money. Have done no financial training up to this point.

 

Other relatives want to tell child. More than a little afraid the money will be spent by adults in the child's life, since child doesn't know it's there and there are now no legal restrictions on it. It is sitting in an account with child's name and step-parent's name on it. If it was ever spent, only recourse would be for child to go back and sue to try to recover it. Want child to know it is there to be used for college, etc....

 

Essentially.....everyone else knows it's there....except the child.

Edited May 4, 2009 by snickelfritz

[athena1277]

It's just my 2 cents, but i think it might be wise to put the money in a savings account (to draw a little interest) until the teen in 21 and THEN tell about the $$. Of course if said teen changes course and wants to go to college, then I would tell sooner. HTH.

[Impish]

Hmmm. Put it in a trust with a lawyer and another person that has to sign off on any spending from it.

[MomLovesClassics]

The young adult could have resentment if this information is told to them by the wrong person. Also this young adult should be held accountable for his or her own actions. If they blow it on nothing, they will have no one to blame but themselves. I know it sounds harsh, but people have to live their own lives, all you can do is love them. All that can be done is love them and guide them to the best of your abilities. I do know of adults who did get huge lump sums from life insurance policies, like $500,000 and did not make wise decisions. One, I do admit it was somewhat expected, the other one would have thought different.

[snickelfritz]

parental figures have said that child (young adult is actually a better term here....just trying to use very generic terms) WILL NOT be told and "everyone else" needs to butt out.

 

"Everyone else" isn't too happy with that and wants to just tell the child.

 

It seems to be an either/or situation without a happy, logical medium.

 

And, will child be very mad at everyone involved when they eventually find out about the big secret that was kept from them?

 

 

 

And, again, I'm not directly involved in the loop. But I get called repeatedly for advice.

Edited May 4, 2009 by snickelfritz

[Sophia]

It sounds like the adult(s) in this child's life may not be trustworthy so chances of them putting it in a trust for a few years are slim?

If that's the case, I'd tell the child and strongly urge him to put it in a trust himself. Maybe entice him by suggesting he keep a little "spending money" but put the bulk in a trust?

I'd hate to see him get cheated when his parent clearly wanted him to have it, and I think it's important the child know his dad was thinking ahead for him.

[Sophia]

Hmm...whether or not I interfered would depend on how close I was to the child and/or the deceased parent.

If there is a close relationship then I would expect the child to be angry info. was being withheld.

[Tammy]

then how 'can' you keep it from him? I would think that would be illegal to keep it from him....right?

 

.

[phathui5]

How much money are we talking about?

[Kathy in MD]

I'm wondering, since the account was legally restricted while the child was a minor, wouldn't the step-parent's name be dropped from the account once the child turned 18? I'd also expect all future mailings to go directly to the child. So the child would find out as long as he got to the mail first. You should be able to check with any insurance agent (if it's held in an insurance account), a banker, or attorney in the state of residence to see if I'm right.

 

If that's the case, then you don't need to worry about the misappropriation of the money, unless the step parent forges a signature.

Edited May 4, 2009 by Kathy in MD

[H.S. Burrow]

People directly involved ask me CONSTANTLY if they are making the right decision. I see both sides.

 

A child loses a parent when they are young. The parent left a life insurance policy with the child as the sole beneficiary. This means they get it when they turn 18....no restrictions.

 

This child recently turned 18. Rebelling. Wrecked some vehicles while drinking.

 

Remaining parental figures have decided not to tell child about money that was left by deceased parent. A significant amount of money. Think child will blow the money. Have done no financial training up to this point.

 

Other relatives want to tell child. More than a little afraid the money will be spent by adults in the child's life, since child doesn't know it's there and there are now no legal restrictions on it. It is sitting in an account with child's name and step-parent's name on it. If it was ever spent, only recourse would be for child to go back and sue to try to recover it. Want child to know it is there to be used for college, etc....

 

Essentially.....everyone else knows it's there....except the child.

 

 

A lot depends on exactly how that account was set up. If it is a joint owner account, then the step-parent already has access to the funds and could have already spent them.

 

If a UTMA was set up, then once the child turns 18 the account will have to be revised and put into just the child's name - the financial institution will not have a choice unless there is some legal document that instructs them otherwise.

 

A lot may also depend on your state's laws on minor accounts. My advice would be for the deceased parent's relatives to attempt to have the money transferred into a trust account.

[snickelfritz]

It sounds like the adult(s) in this child's life may not be trustworthy so chances of them putting it in a trust for a few years are slim?

If that's the case, I'd tell the child and strongly urge him to put it in a trust himself. Maybe entice him by suggesting he keep a little "spending money" but put the bulk in a trust?

I'd hate to see him get cheated when his parent clearly wanted him to have it, and I think it's important the child know his dad was thinking ahead for him.

 

Exactly

 

then how 'can' you keep it from him? I would think that would be illegal to keep it from him....right?

 

Technically, yes. But once the child turned 18, the courts ceased any oversight. Concerned people have checked with lawyers and it is up to the family to tell the child and handle the situation ethically. Child could potentially later sue if funds were mishandles, but likelihood of getting back money that everyday people have spent???????

 

How much money are we talking about?

 

I'm not exactly sure. Somewhere in the $100,000 to $200,000 range. So, not going to make child a millionaire....but would pay for college and a start in life.

 

I'm wondering, since the policy was left to only the child, wouldn't the step-parent's name be dropped from the account once the child turned 18? I would also expect the insurance company to directly notify the child about the policy after the age of 18 (give them time). You should be able to check with any insurance agent or attorney in the state of residence to see if I'm right.

 

Somehow, according to the lawyers.....NO. Sounds stupid to me and I sure don't understand te legalities of the situation.

[myfunnybunch]

If the parental figures have any control over the account at all, perhaps they should put it into a trust fund until this young person is 21 or 25 to give him time to grow up and get his life together.

 

Then tell him. He will know about the money, which takes care of the other party's objections, but he won't be able to spend it.

 

Cat

[Stacie]

I may be jumping to conclusions here, but if step-parent was an addition to the family after the actual birth parent died, how does step parent have any say or control over the money? Why is step-parent's name on the account? Was the child legally adopted by the step-parent?

 

I vote that the child, now young adult, be given the money and a Dave Ramsey class together. He is legally entitled to the money and it belongs to him. Keeping it from him seems like it could be illegal, but I'm not sure of the specifics.

[MomLovesClassics]

There is a reason this young adult is being a rebel. Those issues need to be dealt with. Keeping this information from this young adult is sending the message that they could be viewed an outcast, not accepted, or never trusted with important information. This in turns causes this young adult to rebel more and more. This young adult may end up alienating themselves from family. They need love and support. They also need to see that the sort of reckless behavior they have indulged in could lead to death, or prison. It is important they get this information, but in a loving supportive way.

[KristenS]

It's a pain to get adult names removed from minor's stuff once the minor reaches adulthood. We were given gifts of stock by a grandparent when we were children, and even into my adulthood the bank would occasionally insist that my mother and I both sign the dividend checks, even though it was deposit only and both our names were on my account. It was wacky. And to remove a person from a bank account, that person has to sign off on it ... you can't just remove a name from an account. I learned this when I got married and my mom and I switched my account from joint with her (for emergencies) to joint with my husband.

 

So if the stepparent is on the account, then technically he has as much legal access to that money as the child does. And if the child doesn't know the money is there, the child can't really do much to protect it. Seems ripe for scamming to me. :(

 

This is probably the sort of situation that a lawyer's advice would be needed on ... and the child probably does need to be informed the money is there. Is it possible the family could get a lawyer to send the child a nice legal letter with the information, so that one family member doesn't end up as the sole bad guy? Make it look like part of the will ... informed when turns of age. :)

 

And then guide the child into moving it to a separate account, preferably with financial counseling.

[Rosie_0801]

I vote that the child, now young adult, be given the money and a Dave Ramsey class together. He is legally entitled to the money and it belongs to him. Keeping it from him seems like it could be illegal, but I'm not sure of the specifics.

 

:iagree: And if they go ahead and decide to waste it, it won't be because they didn't know better. Presumably a financial advisor would suggest some money be set aside for fun right now, and the rest for sensible purposes.

 

Rosie

[katemary63]

then how 'can' you keep it from him? I would think that would be illegal to keep it from him....right?

 

.

 

I agree with this. The only person who could put this money in a trust would be the kid him/herself. If you are acurate that there are "no restrictions" and that the kid inherits the money at age 18 and that the kid IS age 18, then it would be illegal NOT to hand over the money to the kid. The parents would have NO legal right to make any OTHER decisions about the money.

[Danestress]

if the family tells the boy he's likely to rebel more, and it the surviving parent's hand is forced, the child will get the money, it could be an absolute train wreck, and the relatives will bear a lot of guilt for that. Is that what they want? When he buys cars and drugs, the surviving parent will forever hate them for allowing his or her son to wreck his life.

 

if the surviving parent doesn't tell the child, and the relatives keep their mouths shut, than if the child gets cheated out of money, they will feel guilty about that instead. It won't be good for their relationship with the child. Either way, the relatives here have a lot of potential to do some very serious damage.

 

But in either case, their guilt is contingent upon the bad acts of other people. They will only find that their actions lead to grief if, in the first case, the child really blows the money or in the second, the surviving parents steal it.

 

So I would start by asking really how likely it is that either of those will happen. Is it a sure thing that the surviving parent will spend the child's money? I think everyone suspects parents of doing this when there is access to a child's money. I can remember family members being up in arms when a friend bought curtains because everyone was sure they used the child's money (they hadn't). Is there a history of financial abuse here?

 

And also, I would ask how likely it is that the child will really rebel? He might surprise you. My child had investments and when he reached 18 and had access, we really worried, but he was very responsible with them and still has us manage them. We had been worried sick because he was capable of pretty irresponsible behavior, but when push came to shove, he wanted to be a grown up, and having money made him feel powerful and therefore less rebellious.

 

I think one thing the relative might want to do is to tell the parents, "We are going to tell him, and we are going to tell him to do a full accounting of property immediately and we will help him pay legal fees to do this *unless* you fully disclose to use what you have and you put it in a financial vehicle that will protect it and keep it available for him in a few years when he's more mature." They could insist that the parents be transparent with another family member about what is there and how it is spent.

 

But understand that they will fracture forever their relationship with the parents, because they are essentially saying, "we don't trust you to do what is right for your child. We think you are thieves." Think about how you would feel if your MIL called and said that you either send your child to school or she would start calling CPS about everything she doesn't like. They are going to feel pretty much the same way as you would. Right or wrong. So unless the evidence is pretty clear that the surviving parent is likely to steal the money, I would tread carefully.

 

And if they get the parents to agree to have another family member in on the bookkeeping, they will still likely be the child's enemy when he does finally figure out what happened.

 

This is a really difficult situation. But you know what? The parent who died made a mistake in setting this up this way. It would not have been expensive and would have protected the child much better to set up a trust that wouldn't mature until the child was much older. The trustee could be authorized to use the money for educational expenses. Shame.

[bettyandbob]

From what you said it is too late to keep the money from the child. And if you do the child can sue those doing so to get his money plus I'm guessing some damages/penalties on those with holding the information. If the child was truly the beneficiary on the policy, then he gets the money now--now with holding. And since it is his money and I'm assuming it's earning interest somewhere, you can't with hold this information, because all of his tax reporting the IRS will be wrong. So, on top of messing up he'll get audited and subjected to a big fine. Or perhaps where ever this money is invested it lost value this year and the young man could have claimed that on his taxes. That said the tax issue is less important than the fact that the money is his.

 

To prevent this sort of thing, the beneficiary of the insurance should have been a trust to benefit the child for a period of time--say age 25. That's usually the age most people suggest, gives the kid who's gone through a stressful childhood (lost parent) a chance to screw up a bit, get a skill/education and get back on track as a productive adult. Until the age the trust ends a guardian pays out for things designated by the trust--it could be limited to education expenses only or it could cover living expenses too. Anyway, it's time to check your wills and insurance policies and see if what you intend to happen in such a tragedy will for you child.

[Stacie]

parental figures have said that child (young adult is actually a better term here....just trying to use very generic terms) WILL NOT be told and "everyone else" needs to butt out.

 

"Everyone else" isn't too happy with that and wants to just tell the child.

 

 

 

I really should finish making dinner, but something about this statement doesn't sit right with me. Where has the money been between the age parent died and the age of majority? If it was in a trust, it should be legally protected. If it was in the control of the parental figures however, it could be long gone. Could this be the reason behind their tough stance on keeping it a secret, and the reckless lifestyle of the child is only a convenient excuse to hide behind?

 

Then again, maybe my conspiracy brain cells are working overtime! :D Either way my children can't starve while I ponder it...

[bettyandbob]

In addition to what I said previously, I'd have a good counseling session when I sat down to explain that this was his money. At the session, I'd have a financial planner who could maintain the investments if the child so chiooses, and the relatives/guardians/supportive adults. I'd get them all to explain that his parent wanted him to be able to support himself. So, if he bought a condo and a porsche today and went to work at WallMart he very shortly would not be able to pay the taxes on the condo and car, because his income would not cover the taxes. He also needs to be told his ability to manage this money is his safety net. If he blows it, the people who have been able to care for him will not be able to help recover anymore.

 

I'd be all for bullying (within legal bounds) the young man into signing 150K into a trust for his educational benefit and letting him have 50K to blow, less than 50K the young man might not take to the idea, because he has just been told it is his money, so why should he be deprived. A lot of financial planners manage trusts.

[eternalknot]

I'm in favor of telling the child; I'd feel an ethical obligation, and I'd want to also know if our roles were reversed. I've learned that this kind of secret doesn't do a family any good, nor an individual (forest, trees and all of that). What good is a lot of money, if it severs or strains family relationships?

 

I'd likely take these steps:

 

1. Decide to tell the child. Involve the parents in my decision, giving them first right of refusal to tell him themselves. Set a tell-by date, probably 6 months or so in the future but definitely before his 19th birthday. Work with them on addressing their fears, including -

 

2. Decide how to educate the child on fiscal matters. Seminars, college course, books ... decide how to adequately train the child on money management. Agree to withhold telling the child of his inheritence until he has satisfactorily (to the parents, ideally) completed a crash course in money management. Ideally the parents are involved in these decisions, but if not then I (the relative) would be proactive and assume responsibility by virtue of my wanting to tell the child of his inheritence. Then,

 

3. Tell the child about his inheritence. If he refused to take financial management courses, I may tell him of his inheritence before hand but imply that the inheritence was conditional upon completion of courses on financial management. Not all secrets are created equal, and I'd advocate withholding the inheritence until he had been exposed to information on how to handle his new wealth. Finally,

 

4. Meet with a wealth manager. Ideally this is the child's first expenditure out of his inheritence, but if not I'd again take it upon myself to "make the meeting happen" if it was in the child's best interest. I'd feel this was still part of my ethical obligation to the child, YMMV. With a neutral party, it seems win/win: the child has an adult advisor but still feels a greater sense of control over his inheritence.

 

If the parents neglected to work with me, I would do steps one and four only. If they didn't tell the child by x-date, I'd take the child to lunch ... tell him of his inheritence ... take him to the bank to figure out procedures ... drop him off at a pre-arranged appointment with a wealth manager (or have an appointment made for the immediate future).

 

It's been my own experience that when the extended family keeps a secret, it's like a double betrayal to find out that well-meaning relatives knew but never told. All of the "we wanted to/thought about telling you" after the fact does little to address the hurt and upset felt at a time we most NEED friendly, familiar faces to guide us.

[Maria from IN]

I wouldn't tell the child. According to the way you say it's acting, it's still a child. When said child matures, the money will be there, and if said child knows how lucky he/she is that someone was looking out for their best interests even when they were being a complete pain in the tuchas, they will be grateful that they weren't told...lest it all goes up their nose or to lottery tickets or beer or cars that just get totaled or...whatever.

[Harriet Vane]

I did actually know someone in college whose parents died. His father died from a heart attack while my friend was in early adolescence (13??) and his mother died of cancer when he was 16.

 

His uncle spent his inheritance.

 

It was very hard to talk about with him. I wanted to go strangle the guy, but it was complicated by the fact that there was actually somewhat of a familial relationship between my friend and his uncle. My friend also was remarkably laid back about possessions and stuff in general (he lent his car out quite freely!). He wasn't happy about the money being gone, but he also didn't want to have to fuss about it. He let his other relatives fuss.

 

At one point the uncle agreed to pay a portion back to my friend in installments, but my memory is that this was sporadic at best.

 

Coming from this perspective, I am very, very suspicious about where that money really is and whether or not it has been spent.

 

I think steps should be taken to secure it in a trust with some controls. I don't have the savvy myself to advise on the specifics.

 

The bottom line, though, is to be honest.

[Catwoman]

Whatever anyone else may believe is best for this young person, his parent intended that he have the money when he turned 18, and those wishes need to be honored, from both legal and ethical standpoints.

 

I am all for the idea of trying to get the kid to behave responsibly and save most of the money, but it's really no one else's decision but his own. His parent made a decision on his behalf, and whether or not that decision was misguided, it was his or her choice and that should be the end of it.

 

How would you feel if someone considered withholding an inheritance from your child, after you'd agonized over the decision and took the time to include your specific instructions in your will?

 

Maybe the kid will squander the money; I hope he won't, but it's his money to do with as he chooses.

 

Cat

Edited May 4, 2009 by Catwoman

[KidsHappen]

I am not a lawyer but my understanding based on our insurance policies and wills (and I do understand that that is different in each state) is that if we died all of our money would go to the executor of the estate and insurance policies would be paid directly to beneficiary. There is also an option to create a trust for the child.

 

Is there an executor in this case? If so this person would be responsible for insuring that the wishes of the deceased were carried out and he would be legally responsible if he did not. If there is not executor or the money is payable directly to the child there is no way for anyone to withhold the money from him. So in order to determine the legally and ethically correct actions it would be necessary to know what the dispensation of the money is right now. WHere is the money? Who is holding it? Are they in charge of it indefinitely or only until the child is a certain age? In my opinion, all pertinent legal documents need to be taken to a lawyer for review and I just don;t see how that can be done without the child being aware. As a matter of fact, he should have been notified regarding the wills and policies at the death of the parent.