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Mind on Money: Keep an open mind when thinking about family gifts
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Mind on Money: Keep an open mind when thinking about family gifts

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The husband and wife are one of our best client families. Owners of a successful small business that was sold with excellent timing, they know how to take advice and are good investors. They are living their best lives in retirement, and would continue to do so with complete financial freedom, likely to continue building wealth throughout their remaining years.

Their planning meetings are always relaxed and positive, something to look forward to on the calendar. This meeting, however, started differently. There was stress in the room; something was weighing on their minds.

I tapped into the stress right away and started with a concerned “what’s going on?”, thinking to myself it couldn’t be their investments, as their portfolio was near an all time high.

“We are concerned about our daughter,” was the reply. The response was odd, as their daughter and her husband are successful in their own right, happily married with two high-achieving college sophomore granddaughters. Now I was concerned. “Is she OK?”

“Oh, she’s good, the girls are great too, but she was offered an insider deal on a condo in Colorado that she really wants, and with the girls in college we are just not sure she’s ready. But it’s a really great opportunity.”

“Well, are you thinking about buying the condo?” I asked. “No, it's her deal, and not a fit for us. We are just torn, we are thinking about helping her out but we just don’t know if it’s the right thing.”

And so, we stumbled into one of the most complex areas of financial planning for families, the subject of gifting and parental generosity. As we explore this topic, I want to be clear, this column is not about parents supporting adult children; that is an entirely different column. This column is about being generous when the parents can clearly afford it and the kids are fully independent, and in my experience, it’s complicated.

The first complication comes from what I call the “boot strap” philosophy of American culture. In America we like to believe anyone can pull themselves up by their boot straps and become successful, and every successful parent I know envisions their children also being successful and making their way by their own merits. I have heard many parents express the concern that if they are generous with their adult kids, they won’t properly experience the unique American journey of “doing it on their own.”

I have to admit, I indulge in this viewpoint myself, but having been involved in both ends of selective parental generosity, I’m not sure this cultural idea holds water. Providing some string-free funds around the closing of a first home, when finances are tight, or receiving a generous gift at Christmas from my wife’s retired parents, neither stymied my daughter’s drive to succeed or threw my career off track. Instead, I have come to believe some well-timed generosity can actually serve to reaffirm accomplishment, of both the children and the parents, and if timed well the American ladder of achievement can remain intact.

The second complication is control and secrecy. This one is tough, and I believe often not even intentional. For many of us, however, money is an opaque subject closely linked to self-image and identity. We were told money is private by someone, and so we make it private.

Is this right? Of this I’m not sure. Being generous does in fact reveal the ability to be generous, and in my experience, money given away is best done freely without controls. For the ones giving the money away, this revelation and surrender of a little control might actually have positive effects far beyond the gift itself, you just never know.

The third complication in my experience is guilt. Guilt not on the part of the giver, but from the receiver. “Mom and Dad sacrificed everything for me, and now I don’t want their money,” is extremely common to hear around the planning table. I will further admit, I indulge in this one as well. But the truth of the matter is gifts aren’t up to the receiver, they are the action of the giver. The only appropriate response is gratitude. Guilt can interfere with gratitude so I think it is best checked at the door.

Each family culture is unique, and when planning, the security and independence of Mom and Dad have to take precedence, but for some families gifting and generosity during a parent’s life time could provide unexpected benefits to both the givers and the receivers. Keep an open mind.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.

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