Law News and Tips

Too Much, Too Soon?

Fred Vilbig - Tuesday, September 29, 2015

There used to be a fashionable restaurant in Ladue where some of my clients liked to meet for lunch. To get to the dining room, you had to go through the bar. I like to eat lunch around 11:30 to avoid the wait, so we’d be there before the rush.

As I would walk through the bar area late in the morning, I was always surprised at how many people (primarily older men) were sitting at the bar. It seemed as if they had been there quite some time since they were well on their way to somewhere else.

One trust officer I know once referred to these gentlemen as “trust-babies.” Their parents had made huge fortunes. They left their estates in trust to their children. All the kids had to do was collect dividends, royalties, and/or annuities. For a number of them, it seemed as if life had very few challenges, so they ended up sitting at a bar before 11:30 in the morning.

Although we all want to provide for our kids, we don’t want to ruin them, and large amounts of money, particularly at an early age, can do just that. Most of us can only wish we had to deal with vast sums of money, but wealth is a relative concept. Even smaller amounts can ruin teenagers and young adults.

In many studies of the formation and development of the brain in adolescnets, neuroscientists have discovered that the frontal lobe of the brain – the part that asks, “Is this a good idea?” – isn’t fully formed until we are in our mid-20s. Teenagers and young adults lack insight, that deeper understanding of the consequences of our actions.

It is also true that kids can develop bad habits that stick with them for life. We all probably do things repeatedly that we started doing when we were teenagers, and changing any of those habits is really tough. I believe that if we routinely act a certain way when we are young and our brains are more plastic, habits get ingrained.

I knew a kid in college who on his 21st birthday inherited not one but two insurance companies. Yes, they were small, but their stock dividends were more than a 21-year-old needed to have to live on. Even though he’d been a pretty good student before, he never finished school.

We work hard to accumulate wealth to take care of our families, yet that wealth may become a stumbling block (if not a barricade) to a productive life for our children. Careful planning can help avoid that. Certainly you should not just give your children a large sum of money outright. As I often tell my clients, we would’ve been prudent and responsible with a lot of money ourselves, but can we really trust our kids?

Until a child reaches an age of some maturity, I usually recommend that clients leave their money in a discretionary trust with an older relative or friend or a trust company as the trustee making investment and distribution decisions. Who that trustee is depends on the size of your estate, and who your family members are.

And what is an age of maturity? I had one client who was offended by my suggestion that her 18-year-old son might not be able to handle his substantial inheritance. On the other hand, I had another client who didn’t think that his children should be able to handle their inheritance until they were 62 ½. That age of maturity question is a tough one, and it varies from person to person. Careful planning is critical.
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