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Dear Quentin,
My daughter is 29. She is about to inherit a substantial amount of the principal from a trust left to her by her grandfather, who has been gone for approximately 15 years.
She has always been a responsible, mature daughter, who did very well in school, got scholarships, attended graduate school, and now has a good job she enjoys that provides financial security, health insurance, etc. She has a partner who is similarly responsible. She has no debt.
My husband has capably managed her trust since her grandfather’s death, and has grown it to be an amount of money that will provide her a substantial cushion in life. In addition, she will likely inherit money from us someday.
My daughter has shown very little interest in her inherited money. She spends no more than she earns, and doesn’t ask for disbursements from the trust. My husband periodically disburses trust income to her according to the terms of the trust, which she asks him to manage.
To my knowledge, she has never made an expensive purchase of any kind with either her own money or her grandfather’s money. My husband, 64, is fine with managing her money for her. She does her own taxes, but gets advice from him for the trust-related income, and is aware of the balances in her trust accounts.
“‘To my knowledge, she has never made an expensive purchase of any kind with either her own money or her grandfather’s money.’”
My questions are twofold:
1. I think my husband should be putting more pressure on my daughter to engage with her money. By doing all of the management himself, he is not teaching her how to make financial decisions or to engage psychologically with the responsibilities of wealth.
He thinks that as long as she is uninterested, it is fine for him to do it, and if he were to pass away, she could hire a financial adviser to do it in his place. Who is right? Is there a middle position we are not seeing?
2. My husband puts a lot of emphasis on “using the money in ways that would make Grandpa proud.” I do not agree with this position. Grandpa left no specific instructions about how he wanted her to use the money.
The language in the trust says only that the money could be disbursed prior to age 30 with permission of the trustees for use for her health, education and well-being. I think this language is guidance for the trustees, as a way to say no to teenage requests for fast cars and cruises.
“‘I am not comfortable with the emphasis my husband’s communications about Grandpa’s values puts on making life-altering decisions.’”
I am not comfortable with the emphasis my husband’s communications about Grandpa’s values puts on making life-altering decisions based on what our daughter thinks might have been important to a person whom she never knew as an adult and who has been dead for over 15 years. Yet I do appreciate that my husband wants his father to be honored and not disrespected in the use of money he left her.
I grew up in a family with no wealth and no expectation of inheritance, and my husband grew up in a family of significant means. So it makes sense that we would have different perspectives, and it isn’t clear which perspective serves the next generation well.
So, in summary, how do we start to encourage our smart, educated, responsible daughter to engage with her financial situation and also to think about the money in ways that are consistent with her own adult values? Or do we just leave her alone and continue on this way until she initiates change or my husband can no longer manage her investments?
The Other Parent
Dear Parent,
You’re correct in that unless your daughter builds enough financial confidence to ask questions and learn about how she can invest her money, and trust her instincts and establish her own risk tolerance when it comes to investments, she is vulnerable to another person stepping in and filling your husband’s shoes, particularly when he is no longer around to help.
He is reluctant to let go, but trusting your daughter to make the right decisions is part of her growing up, and thus far she appears to have proven herself to be a responsible and cautious individual. The best you can do is to lead by example, and — I’m with you — part of that is allowing her to make her own decisions, as you and your husband have done with your own lives.
There seems like no need for aggressive intervention, but there does appear to be a need for building her financial knowledge. Help her choose a registered investment adviser (RIA) who has a fiduciary responsibility to her. She could benefit from a collaborative approach involving an RIA and your husband, as she becomes comfortable managing her wealth.
“‘There seems like no need for aggressive intervention.’”
By involving her in the decision-making process, she will have a better understanding of how the trust can provide her with opportunities — educational or professional — and security as she gets older and her priorities change. She may wish to start a family of her own, for instance, or invest in real estate. She may be happy investing in mutual and/or index funds.
Some folks — including MarketWatch contributor Paul A. Merriman — prefer the latter for their low costs, low turnover, “low drama,” easy diversification, and relatively modest commissions incurred by Wall Street’s salespeople. “The No. 1 reason you should love index funds is they will keep you out of the hands of pushy, unethical salespeople and brokers,” Merriman writes.
An RIA will also help her create a roadmap for her retirement. The FINRA Investor Education Foundation and NORC at the University of Chicago conducted a survey last year of first-time investors, who flocked to the market to buy stocks during the dip in the stock market. Their No. 1 reason? To invest in retirement.
Your husband wants to protect your daughter and ensure she lives up to her grandfather’s hopes. You want to empower your daughter, and hope that by becoming her own person she will fulfill her grandfather’s dreams for her.
Bottom line: You want your daughter to become an active decision maker, even if the answer is to do nothing for now; learn the basics of investing so she knows what questions to ask; and not hand her fortune over to one person to make decisions without her knowledge or understanding. It’s her money, after all.
The first step is for you both sit down with your daughter and include her in these conversations. You will discover that you will all learn from one another.
You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com, and follow Quentin Fottrell on Twitter.
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More from Quentin Fottrell:
• My married sister is helping herself to our parents’ most treasured possessions. How do I stop her from plundering their home?
• My mom had my grandfather sign a trust leaving millions of dollars to two grandkids, shunning everyone else
• My brother’s soon-to-be ex-wife is embezzling money from their business. How do we find hidden accounts?
• ‘Grandma recently passed away, leaving behind a 7-figure estate. Needless to say, things are getting messy’
