Should I Dump a Pile of Money on Young Son?

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metrunt
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Re: Should I Dump a Pile of Money on Young Son?

Post by metrunt » Fri Jul 20, 2018 11:23 am

Rupert wrote:
Fri Jul 20, 2018 11:15 am
letsgobobby wrote:
Fri Jul 20, 2018 11:06 am

Does money always change everybody?
No, but compare the secretary who accumulates millions over time to the typical lottery winner.
That's not a reasonable comparison.

The typical lottery winner, by definition, has poor financial decision making skills.

letsgobobby
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Re: Should I Dump a Pile of Money on Young Son?

Post by letsgobobby » Fri Jul 20, 2018 11:25 am

Rupert wrote:
Fri Jul 20, 2018 11:15 am
letsgobobby wrote:
Fri Jul 20, 2018 11:06 am

Does money always change everybody?
No, but compare the secretary who accumulates millions over time to the typical lottery winner.
Other than age, what about the son in this case makes you concerned a million dollars would ruin him?

MathWizard
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Re: Should I Dump a Pile of Money on Young Son?

Post by MathWizard » Fri Jul 20, 2018 11:28 am

I would not.

You would be giving money with conditions. If you want there to be conditions, keep the money, and give as needed.

Your thinking seems to be that the tax situations makes it better to gift now than later. I suspect that
it is in fact the other way around.

The federal estate tax exemption is so high that it is highly unlikely that it will affect my estate. If it did, $1 Million would
have to be a small part of my estate. My guess is that the same is true of yours.
(State estate or inheritance taxes may be a different story for you.)

However, the tax consequences of the federal estate tax law are likely to be positive, in my case at least, due to
stepped up basis for Capital Gains.

By being subject to the estate tax, anything with outstanding capital gains gets a stepped up basis.
This is extremely important for any taxable stock or property that is passed on. When my kids sell any of
our property, it will be assessed at the time of probate. That will be the amount of the basis for capital gains,
not the (likely much lower) amount that I paid for it initially. If they sold it right away, there would be no CG
taxes owed on the sale.

chw
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Re: Should I Dump a Pile of Money on Young Son?

Post by chw » Fri Jul 20, 2018 11:29 am

Congrats on raising a son who appears to have solid financial values! There are lots of ways you could set up the transfer of this windfall to your son. It seems you should consult a competent estate planning attorney in your state to determine the best way to accomplish the transfer, while respecting your son's wishes. Perhaps confirm that your son's security clearance could be reviewed depending on how much wealth you drop on him at one time. Let him know that this appears to be excess capital for you and your wife, and that you are seeking to improve the quality of his life now with money that he will inherit eventually.

If it were me, and if my child didn't want any of the funds at this time, I would look into possibly setting up a trust to pay him a stream of income from the funds at some point in the future, with possible principal drawdowns for life events such as marriage, purchase of a home, children's education etc.
Last edited by chw on Fri Jul 20, 2018 11:31 am, edited 1 time in total.

Rupert
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Re: Should I Dump a Pile of Money on Young Son?

Post by Rupert » Fri Jul 20, 2018 11:31 am

I don't know OP's son. And I stated very plainly in my post above (not immediately above, read higher) that I was speaking generally from my own life experience. I believe giving lots of money to young people, in general, is a bad idea. Most estate planning lawyers agree with me. There are other ways for OP to structure gifts to his son over time that would avoid the risks inherent in a windfall like this but that would still benefit OP's son in the way OP seems to intend. OP asked for advice, and I gave it. Geez.

KlangFool
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Re: Should I Dump a Pile of Money on Young Son?

Post by KlangFool » Fri Jul 20, 2018 11:46 am

Rupert wrote:
Fri Jul 20, 2018 11:31 am
I don't know OP's son. And I stated very plainly in my post above (not immediately above, read higher) that I was speaking generally from my own life experience. I believe giving lots of money to young people, in general, is a bad idea. Most estate planning lawyers agree with me. There are other ways for OP to structure gifts to his son over time that would avoid the risks inherent in a windfall like this but that would still benefit OP's son in the way OP seems to intend. OP asked for advice, and I gave it. Geez.
Rupert,

+1,000.

Do no harm! The kid is doing well. Why mess it up with 1 million?

There are 2 choices here:

A) Do nothing. It will continue as it is. He is doing fine.

B) Give 1 million. It may go well and it may not.

KlangFool

inverter
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Re: Should I Dump a Pile of Money on Young Son?

Post by inverter » Fri Jul 20, 2018 11:58 am

I am 24 and would not recommend gifting it directly. I, for example, inherited a six figure IRA from my grandfather. It is perfect -- I am not able to access it for cash, yet it has given me the confidence to be able to choose a career that I love, instead of one that necessarily pays well, since I know I have a head start on a nest egg.

A trust or some other mechanism, which the others who are smarter than I have suggested, would be my recommendation.

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Re: Should I Dump a Pile of Money on Young Son?

Post by JBTX » Fri Jul 20, 2018 12:02 pm

Chances are he would be fine as he obviously is a well grounded person. But knowing you have a million in your "back pocket" may alter his decision making somewhat.

Of more concern would be a potential spouse. That could complicate life for him significantly. If you want to pass it on to him sooner vs later, talk to an estate planning attorney and set up a good trust.

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Re: Should I Dump a Pile of Money on Young Son?

Post by Sandtrap » Fri Jul 20, 2018 12:04 pm

No.
Set aside in a trust for him.
j

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Re: Should I Dump a Pile of Money on Young Son?

Post by Dottie57 » Fri Jul 20, 2018 12:09 pm

letsgobobby wrote:
Fri Jul 20, 2018 11:06 am
Dottie57 wrote:
Fri Jul 20, 2018 10:01 am
letsgobobby wrote:
Fri Jul 20, 2018 9:41 am
Rupert wrote:
Fri Jul 20, 2018 8:25 am
No you should not dump a pile of money on your young son. He's doing great, and you might ruin him with it. The wrong sorts of people may become attracted to him (they seem to be able to smell money on a person). See an estate planning lawyer for help in preserving and protecting that money for your son.
Why do your response and so many of the others assume that giving the money later will ruin him less than giving the money sooner? He's already demonstrated enormous maturity and judgment especially for his age.
If you’ve ever seen someone receive a large amount and go nuts, you would know. Money does change people, especially if acquired fast.
Does money always change everybody?
It certainly has the potential to. Receiving a large sum of money causes most people to review their lives including their financial situation. OP is reviewing his situation as he is thinking he may not need the money. Some people become hoarders. Some may suspect everyone of trying to use them or like them for their $. Some spend much more freely. Some people think of giving money gifts as a way to influence or pull someone’s strings.

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Re: Should I Dump a Pile of Money on Young Son?

Post by bengal22 » Fri Jul 20, 2018 12:15 pm

You know your son better than we do. I think the $1 million would be better used now than in the future. His financial behavior is already established so money now won't ruin him. Now is when it can help hm the most. So...just give it to him. No strings attached.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

not4me
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Re: Should I Dump a Pile of Money on Young Son?

Post by not4me » Fri Jul 20, 2018 12:24 pm

A couple of miscellaneous points...OP, this is likely me stating the obvious, but hopefully it is understood that when someone disclaims an inheritance, that person doesn't get to select who does get it. I don't mean to talk down to you or anyone, just making sure that wasn't overlooked.

I would consider how doing this possibly fits into your estate plan. That is, your current estate must be of some size --- what if something happens to you/spouse? How did you address that possibility? And would the $1M give you a chance to see how it is handled & possibly alter your plan?

It may be difficult, but I think it almost vital that once you decide your course of action that you have a dialog with your son before you actually take the action. He's a man now & should be consulted. I would not be as concerned it would ruin him as deprive him of the chance to demonstrate (to himself) that he can make it. If he sees this incorrectly (thinks Daddy doesn't believe he can handle, etc) it might not ruin him as much as his relationship with you/spouse. BTW, how does she see this situation? I'm sure she has greater insight than me on this!

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Re: Should I Dump a Pile of Money on Young Son?

Post by Katietsu » Fri Jul 20, 2018 12:28 pm

I would say the money might change him for the better. Someone choosing to drive a 22 year old car with no A/C in Texas might need the safety net of a extra cash in order to enjoy life. Many on this board, myself included, have made frugal decisions that, frankly, should better be described as deprivation. It sounds like you have an extremely responsible young man who would use the money responsibly and respect the parents wishes.

I think asking him not to spend any of the money until the parents pass away makes no sense. I understand providing guidance or asking him to respect limits to avoid a large mistake. But why would you want him to avoid using any of this money until it is just a small part of a much larger inheritance? I would find it troubling myself to have a million dollars in my name which I left alone out of respect to my parents while I drove a crappy car, lived in a questionable place, maybe put my kids in daycare when we would have preferred to have a parent at home, etc. But then, I have always felt that a $50,000 gift to a responsible person in their twenties is more powerful than a $500,000 gift 30 years later.

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Re: Should I Dump a Pile of Money on Young Son?

Post by Darth Xanadu » Fri Jul 20, 2018 12:29 pm

Interesting that replies seem to be split. I for one can see and defend both perspectives, which leads me to think there is no "right" answer. However, I would at least research trust or other "estate-efficient" options with a qualified professional before deciding.

Personally, I don't believe I would simply hand over $1M to him at this point. I would likely employ one of the several alternatives previously suggested.

Agree with not4me that an adult conversation with your son might be very enlightening and appropriate.
"A courageous teacher, failure is."

FoolMeOnce
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Re: Should I Dump a Pile of Money on Young Son?

Post by FoolMeOnce » Fri Jul 20, 2018 12:33 pm

DragonJoey3 wrote:
Fri Jul 20, 2018 11:10 am
letsgobobby wrote:
Fri Jul 20, 2018 11:06 am
Dottie57 wrote:
Fri Jul 20, 2018 10:01 am
letsgobobby wrote:
Fri Jul 20, 2018 9:41 am
Rupert wrote:
Fri Jul 20, 2018 8:25 am
No you should not dump a pile of money on your young son. He's doing great, and you might ruin him with it. The wrong sorts of people may become attracted to him (they seem to be able to smell money on a person). See an estate planning lawyer for help in preserving and protecting that money for your son.
Why do your response and so many of the others assume that giving the money later will ruin him less than giving the money sooner? He's already demonstrated enormous maturity and judgment especially for his age.
If you’ve ever seen someone receive a large amount and go nuts, you would know. Money does change people, especially if acquired fast.
Does money always change everybody?
I like the way that Dave Ramsey put it (not advocating for DR, I know how people can feel about him here):

"Money is like an amplifier, it makes someone more of what they already are. If you were a butt-hole before you got money, you'll be a huge butt-hole with lots of money. If you were a generous person before you got money, you'll be an even more generous person with lots of money."

I think in OPs case he should consider the character of his son, is he at a point in maturity where he would understand how to manage that much money. Because if you are an immature child with a little money, you'll be a really immature child with a lot of money.
And if you are just a regular Joe who is responsible with money, works, and saves, you'll just become more regular. But might be able to afford air conditioning.

Sounds like this kid can handle it. My net worth it largely due to investments and gifts made for and to me when I was just a kid. I work, save, raise a family, drive a boring car, wear clothes from Target, and live in a house I could have never otherwise afforded in a HCOL area that allows me and my wife a shorter commute and more time with my family. I have also been able to pursue a less lucrative but more rewarding career path, as has my wife, without major sacrifice to our standard of living. My parents are happy that we can do so, rather than inheriting some larger amount in the (hopefully distant) future.

I would consult with an estate planning attorney about disclaiming, trusts, etc., and (if you are willing and ready to give it to him) talk to your son before deciding how to proceed.
Last edited by FoolMeOnce on Fri Jul 20, 2018 12:41 pm, edited 1 time in total.

alex_686
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Re: Should I Dump a Pile of Money on Young Son?

Post by alex_686 » Fri Jul 20, 2018 12:33 pm

Another vote to give him the money.

However, in my experience giving money and responsibility is a maturing event. Give him control and then they have to think about financial planning, which means thinking about budgeting, goals, risk tolerances, etc. I am assuming he has some basic knowledge, like the power of time and compounding, the value of living under one's income, passive investing, etc.

I have found the flip side also to be true, withholding money and keeping the kid tied to the apron strings can retard their growth.

It obviously can go both ways and you know your kid better than us.

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Re: Should I Dump a Pile of Money on Young Son?

Post by AlohaJoe » Fri Jul 20, 2018 12:40 pm

I would do it. You know your kid better than a bunch of pessimists on Bogleheads. He's going to get it, and a lot more, eventually. Why not give him some when it will do some good? He's not a child anymore.

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Re: Should I Dump a Pile of Money on Young Son?

Post by AlphaPilot » Fri Jul 20, 2018 12:42 pm

Maybe to offer a different perspective. I am of that age or age range, we will say.

To me, it doesn't sounds like $1m means a lot to you because you are on here saying you are set for life and asking others for advice on what to do with $1m as if it's a drop in the bucket. Maybe I am reading into that wrong. $1m in your early twenties? I guarantee this will change you. It's because money talks, money walks, and money is a tool. It won't necessarily change you instantaneously. He sounds like he has integrity.

Sounds like your kid is off to a good start on life. I say that money will change him because he has not been through every curveball. I know I haven't. It's what happens with age. And as he is not married and I see my friends getting married around this time...they are all very different relationships. I see some lasting a few years, and some may be for life. However $1m in his name changes everything from how it can undermine being frugal slowly. The first few years you may be proud and see no change in character. The mind takes time to process things. Eventually you will be changed by that large amount of money, I don't care how bogleheadish you are when that age.

I think a large issue boils down to how well you know your son's financial intentions. Does he seek FIRE? Does he want to stay in the forces for many years to come? I would figure this out. I would also not mention the subject of the money to him. That will change the answers you get.

I would also highly recommend waiting until married. Or agree a prenup is ordered at marriage. You'd hate to see it disappear so quickly as divorce can do. He may pick the perfect woman, or not. They can be trickier than money. :mrgreen: (admin can delete that out if it's too offensive...heh.)

Edit: I see no problem with giving the gift on terms to insure both of your well beings. Medical costs change. Accidents happen. There are benefits to having money trickle in versus having it just dropped and walking away. It could be gambled easily at one large chunk either by day trading or down at the casino. Many ways.

warner25
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Re: Should I Dump a Pile of Money on Young Son?

Post by warner25 » Fri Jul 20, 2018 12:44 pm

Just give him the money with no strings attached. I was a lot like your son at 24. I was reading this forum at 22, in the middle of flight school, and starting to max out retirement accounts. Nearly a decade later, I'm certain that inheriting $1M wouldn't have negatively affected me. If someone's nature is to be conservative and save money, I don't think they can suddenly become an irresponsible spender. It's much more likely that he'll just squirrel away the money, feel pain whenever he thinks about spending it, and keep driving that car with no A/C. With well over a half million in savings, I'm living in a deep southern state right now and I still drive around with the A/C off (although my car is only 10 years old, and the A/C does work).

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Re: Should I Dump a Pile of Money on Young Son?

Post by TIAX » Fri Jul 20, 2018 12:50 pm

carguyny wrote:
Fri Jul 20, 2018 8:36 am
Congrats on raising a great kid - I hope mine ends up with the same great judgement (he's only 4!).

I'm going through a lot of the same situation now as we're set and looking at a lot of estate taxes as we keep working. I begrudgingly set up a UTMA which is highly likely to be well north of $1m when he's 21.

I would talk to your son and come up with a plan for the money. Agree a handshake deal on what he's going to do with it. He clearly has strength of character and if he makes a mistake, better to do it on this first $1m.
Why not set up a trust. Few 21 year olds are equipped to deal with $1M.

dkb140
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Re: Should I Dump a Pile of Money on Young Son?

Post by dkb140 » Fri Jul 20, 2018 1:17 pm

My thought would be to invest it and gift him $15000/year each from the earnings (or whatever the gift tax exclusion goes up to).

$30k/year will nearly double his current take-home pay. That's still significant money.
Last edited by dkb140 on Fri Jul 20, 2018 1:55 pm, edited 1 time in total.

afan
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Re: Should I Dump a Pile of Money on Young Son?

Post by afan » Fri Jul 20, 2018 1:24 pm

Bsteiner gave you the start of what an estate planning attorney will say when you consult one. You should meet with such an expert and make plans. You need to consider your likely estate tax exposure. You say you will likely live another 30 years, and I hope that happens. But you could die tomorrow. If you now are in estate tax territory or under current tax law will be in the future, then you need to do some careful planning.

If your relative has already passed, as I interpret your initial post, then it is too late for her to leave the retirement funds in trust and get all the advantages bsteiner raised. But you do have the option to leave money in trust for your son now. Your estate plan should include leaving your assets to him in trust when you and spouse die.

Disclaiming the IRA might be the best maneuver for addressing the estate tax issues, but you need to talk it over. A responsible young person might limit withdrawals to required distributions, which will be relatively small at his age.
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pennylane
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Re: Should I Dump a Pile of Money on Young Son?

Post by pennylane » Fri Jul 20, 2018 1:27 pm

Do not do it under any circumstances.

getthatmarshmallow
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Re: Should I Dump a Pile of Money on Young Son?

Post by getthatmarshmallow » Fri Jul 20, 2018 1:35 pm

Were your responsible son my son, I would be inclined to give it, and do so all at once. It is likely that access to that much money will change some of his decisions. I don't think that's always a bad thing -- and it's worth pointing out giving him a trust will also change his decisions, by incentivizing those decisions that are in line with yours instead of respecting his agency. Money buys freedom, and were he my responsible son, my worry would be that I'd conceal the funds, and he'd make a decision that would hurt him that he didn't have to make: a riskier assignment at work, wife continuing to work when she'd rather stay home with the babies, staying with a lousy employer because of the high pay, injury in an unsafe car.

But I think it might be more beneficial for you to ask yourself the following. Imagine that you were completely comfortable with giving him $1 million. In that scenario, where you have no worries at all, what is true of him that makes you not worried? Or to put it another way: what would he have to do, or who would he have to be in order to win your trust?

I think this exercise will help sort out legitimate worries about maturity from less legitimate worries that his choices might differ from yours.

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Re: Should I Dump a Pile of Money on Young Son?

Post by JoeRetire » Fri Jul 20, 2018 1:40 pm

klneutral wrote:
Fri Jul 20, 2018 7:55 am
Should I worry about "ruining" him by dumping $1M on him so young?
Assuming you have maintained a good relationship with him, the only you and your wife are in a position to judge if this money would "ruin" him or not.

Inheriting $1M would not ruin me, nor would it ruin my sons.

How much faith do you have in him? If you aren't sure, then keep it and decide at a later date.

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Re: Should I Dump a Pile of Money on Young Son?

Post by letsgobobby » Fri Jul 20, 2018 3:14 pm

My actual answer is it depends on the rest of your estate plan. Obviously your entire startegy should be cohesive. Without knowing anything else, in your situation I might give my son $100,000 and see what happens.

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Re: Should I Dump a Pile of Money on Young Son?

Post by Ilikesparklers » Fri Jul 20, 2018 3:16 pm

Your son sounds like a very smart and responsible young man with a bright future.

However, I wouldn't dump a pile of money on him. I think you should use it to help him out during your lifetime. It sounds like he's already on a great path, and I wouldn't risk altering it.

When I was 24, I had graduated from a top college and was living in NYC while working full time. I contributed to a 401K and Roth. I was always a good kid, but having that kind of money would probably have changed the course of my life. I believe I would have lost some of the drive I had.

I'm now 35 and recently learned that I will be inheriting a large sum of money from a relative's estate this year. Even though I have a solid career that I love, I now dream of the real possibility of quitting my job and embracing the FIRE lifestyle. I'm glad this happened unexpectedly in my mid-30's vs. my mid-20's.

Oblivious
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Re: Should I Dump a Pile of Money on Young Son?

Post by Oblivious » Fri Jul 20, 2018 3:30 pm

Yes do it. Your son sounds responsible and sounds like a person that will know how to handle it appropriately.

I know so many parents that will gladly give money to their kids that struggle in life but always hesitate to give it to one of the responsible ones. The excuses for the one that got in some trouble and need it, seem to be.
1. They just had a bad break and needed legal help.
2. They were irresponsible and need to get bailed out of this debt. If I bail them out this one time, this will be a life long lesson that they won't repeat.
3. If I help them with this home, the responsibility of owning a home will help teach them a life lesson.


Where the conversation for the responsible kids goes something like:
1. I don't want this to ruin them and there's no immediate need, so we won't give them any help.
2. They're very responsible, but they need to learn how tough life is before I give them an inheritance to learn how tough life is.
3. They need to learn "sacrificing" while your young, to save and be financially okay when you're older. I had to do it, so they should too.


Give him the 1M and work with him on how to invest it properly. There's a lot more value in getting a large sum in their 20s vs getting it in your 60s. You're demonstrating this now, by saying it won't provide me with much added utility, so I'm considering passing it on. Maximize utility.
Last edited by Oblivious on Fri Jul 20, 2018 3:36 pm, edited 2 times in total.

epoxyresin
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Re: Should I Dump a Pile of Money on Young Son?

Post by epoxyresin » Fri Jul 20, 2018 3:31 pm

I agree with Katietsu, a monetary gift is much more impactful when you're younger and don't have much of it. Presumably, you want the money to change his life. Otherwise, why give it at all? If you're only going to let him spend it after you die and he's 60 and has a couple million of his own, what's the point? That's not to say that you have to give it all at once, you could set up a trust, or even just dole out $28,000 a year ($14k from you and $14k from your wife) and not have to report the gift.

Like, I dunno, I get wanting to be independent from your parents and driving a 22 year old car without AC, but like, he's gonna get the money anyways someday, why not get it now when a few tens of thousands of dollars extra a year could really change his living conditions a lot, vs when you die and he's getting ready to retire anyways and presumably has made enough on his own to live comfortably?

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Re: Should I Dump a Pile of Money on Young Son?

Post by FoolMeOnce » Fri Jul 20, 2018 4:03 pm

Ilikesparklers wrote:
Fri Jul 20, 2018 3:16 pm
Your son sounds like a very smart and responsible young man with a bright future.

However, I wouldn't dump a pile of money on him. I think you should use it to help him out during your lifetime. It sounds like he's already on a great path, and I wouldn't risk altering it.

When I was 24, I had graduated from a top college and was living in NYC while working full time. I contributed to a 401K and Roth. I was always a good kid, but having that kind of money would probably have changed the course of my life. I believe I would have lost some of the drive I had.

I'm now 35 and recently learned that I will be inheriting a large sum of money from a relative's estate this year. Even though I have a solid career that I love, I now dream of the real possibility of quitting my job and embracing the FIRE lifestyle. I'm glad this happened unexpectedly in my mid-30's vs. my mid-20's.
Why? I mean, if financial independence is the goal, as it is for just about everyone, why is it better to be close enough to dream about it at 35 instead of 25? Does anyone who achieves FI by, say 45 look back on their life decades later and think it would have been better if they hadn't achieved FI until 55? I'm sure a few special circumstances, but you get my point.

I understand the concern about giving money to an irresponsible child, but OPs kid seems quite responsible. Responsibility seems far more relevant than age.

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Re: Should I Dump a Pile of Money on Young Son?

Post by Sandtrap » Fri Jul 20, 2018 4:07 pm

letsgobobby wrote:
Fri Jul 20, 2018 3:14 pm
My actual answer is it depends on the rest of your estate plan. Obviously your entire startegy should be cohesive. Without knowing anything else, in your situation I might give my son $100,000 and see what happens.
Perfect!!
Reinforces the wisdom of proper estate planning early in the game.
j :D

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Re: Should I Dump a Pile of Money on Young Son?

Post by Ilikesparklers » Fri Jul 20, 2018 5:22 pm

FoolMeOnce wrote:
Fri Jul 20, 2018 4:03 pm
Ilikesparklers wrote:
Fri Jul 20, 2018 3:16 pm
Your son sounds like a very smart and responsible young man with a bright future.

However, I wouldn't dump a pile of money on him. I think you should use it to help him out during your lifetime. It sounds like he's already on a great path, and I wouldn't risk altering it.

When I was 24, I had graduated from a top college and was living in NYC while working full time. I contributed to a 401K and Roth. I was always a good kid, but having that kind of money would probably have changed the course of my life. I believe I would have lost some of the drive I had.

I'm now 35 and recently learned that I will be inheriting a large sum of money from a relative's estate this year. Even though I have a solid career that I love, I now dream of the real possibility of quitting my job and embracing the FIRE lifestyle. I'm glad this happened unexpectedly in my mid-30's vs. my mid-20's.
Why? I mean, if financial independence is the goal, as it is for just about everyone, why is it better to be close enough to dream about it at 35 instead of 25? Does anyone who achieves FI by, say 45 look back on their life decades later and think it would have been better if they hadn't achieved FI until 55? I'm sure a few special circumstances, but you get my point.

I understand the concern about giving money to an irresponsible child, but OPs kid seems quite responsible. Responsibility seems far more relevant than age.
If I had the same FI mindset and maturity at the age of 24 as I do now, then sure, I wish I had the money then. However, looking back, even though I was a responsible young adult, I still had so much to learn (same as I do now :D).

If his son is already on the FI train, and he is relatively confident he’ll make wise financial choices with the money, I can see the case for giving it to him now.

I simply believe it would have changed my work ethic/spending patterns/life choices for the worse at the age of 24, and I wouldn’t be where I am now.

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Re: Should I Dump a Pile of Money on Young Son?

Post by pilot_error » Fri Jul 20, 2018 5:33 pm

You may be interested in reading the advice your son's coworkers will be giving him. This is a USAF pilot forum thread with common investment strategies. Enjoy!

http://www.flyingsquadron.com/forums/to ... h-sdp-tsp/

And because it is so unique it bears repeating for all the other posters. This individual we are talking about has a rare type of job security in which he owes the military 10 years of service. He cannot quit even if he chooses to.

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Re: Should I Dump a Pile of Money on Young Son?

Post by Iridium » Fri Jul 20, 2018 5:37 pm

OP, you state a concern about estate taxes. To be clear: do you believe that it is likely that your estate will exceed an inflation adjusted $11 Million? Or, are you worried about state taxes?

I think that the discussion takes on an interesting extra dimension when this inheritance represents less than 10% of what he'll get later in life. To put it another way: if he manages to blow this inheritance over 5 years, his lifestyle still wouldn't be what he could afford indefinitely once you pass.

I am closer to your son's age than yours, so cannot really provide good insight. However, I would encourage you to consider: what do you hope your son will do with the money (both the current inheritance and yours)? Your stated desire is for him to spend it after you pass. However, does it really make sense for him to live a life of driving 24 year old cars until you pass, at which point it becomes a life of first class airfare to Italian villas and McLaurens? I very much doubt it. You want to give your inheritance to your son and protect it from taxes, as opposed to, say, giving most of it to charity or spending it on first class tickets to Italy. To what end? Until you can answer that, it is going to be nearly impossible to answer any other estate related question.

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Re: Should I Dump a Pile of Money on Young Son?

Post by celia » Fri Jul 20, 2018 7:16 pm

not4me wrote:
Fri Jul 20, 2018 12:24 pm
OP, this is likely me stating the obvious, but hopefully it is understood that when someone disclaims an inheritance, that person doesn't get to select who does get it.
This is what I was going to start with, too. OP, if you were a co-heir with your siblings (for example), it is likely that if you disclaim, the amount that you would inherit would go to them. Your mom would have had to specify heirs per stirpes or something similar to enable your son (or your kids collectively) to inherit your share.

I agree with those who say you shouldn't force your son to hold onto the money until you die. Since he will have to pay taxes on the dividends/interest each year, how will he be able to afford that without using some of the money to pay the taxes? And if you can disclaim, you have no legal say on how he uses the money since it is HIS inheritance. If you also give him gifts during his lifetime, they are also only gifts if he is free to spend the money as he sees best.

The fact that he is in the military for another ten years also complicates things. He needs to be concentrating on his training and doing a good job, not being distracted by figuring out what he should do with the money. If deployed, he will likely need to find someone to manage the money and prepare his tax returns which will be more complicated than that of his peers. One million dollars will likely be a big distraction to him. (Think about newbies who post here stressing over what to do with an inheritance that is more than what they earn each year.) He will eventually need to confide in someone and who would that be? If taken hostage (or something worse), his captors could demand a ransom if they knew about his wealth. Knowing that, the military may limit his flying or keep him stateside. In other words, you may inadvertently impact his career.
Katietsu wrote:
Fri Jul 20, 2018 12:28 pm
But then, I have always felt that a $50,000 gift to a responsible person in their twenties is more powerful than a $500,000 gift 30 years later.
+1 If you can confirm that a disclaimer would go to him, I would limit the disclaimer to the cost of a new car to be purchased down the road. But even a new car will increase his insurance payments at that time.

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Re: Should I Dump a Pile of Money on Young Son?

Post by warner25 » Fri Jul 20, 2018 8:18 pm

celia wrote:
Fri Jul 20, 2018 7:16 pm
If taken hostage (or something worse), his captors could demand a ransom if they knew about his wealth. Knowing that, the military may limit his flying or keep him stateside. In other words, you may inadvertently impact his career.
Creative thinking, but I don't think this is a factor. In the eyes of our adversaries, any American would be assumed to be wealthy, especially an officer, and the US government has a lot more than $1M. And as much as dad would probably like to see his son remain stateside and out of danger, it just doesn't work that way. Many military officers here on Bogleheads have substantial savings, and it hasn't kept us from deploying. If anything, I think having the money could only help his career. He could pay for conveniences and time-savers that would let him concentrate on more important efforts, and he'd never be stressed about paying unexpected bills, and he could easily pay out-of-pocket for a master's degree program, etc.

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Re: Should I Dump a Pile of Money on Young Son?

Post by TxAg » Fri Jul 20, 2018 8:23 pm

Sounds like a level headed dude. Give it to him.

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Re: Should I Dump a Pile of Money on Young Son?

Post by TimeRunner » Fri Jul 20, 2018 8:30 pm

deleted
Last edited by TimeRunner on Tue Dec 11, 2018 4:40 pm, edited 1 time in total.
“Some depart to remain.”

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Re: Should I Dump a Pile of Money on Young Son?

Post by five2one » Fri Jul 20, 2018 9:20 pm

I'll be devils advocate.

I'm also active military and know exactly where your son is in life right now as he enters the military.

Bottom line up front (BLUF): Don't give it to him right now, he doesn't need it and it WILL cause him problems.

His head needs to be focused on training and preparing for his duties.

I have seen service members who were "good kids" get their head wrong by well meaning but misguided friends/family who didn't want them to "suffer" in military. As a young, single officer, money shouldn't be a problem at all. Everyone knows exactly how much he makes and what he should have/not have as a young officer. Not good/not bad, just is as the military thrives on everyone being on equal footing that is incentivized by common values for common sacrifice and not financial reward.

After about 6 years he will be a Captain and in a better mental state as he gets settled in the military with a few years under his belt and traveled the world a little.

Sure, put it in your will and have a trust with partial payout if desired but this isn't a decision you have to make right now and he needs to focus on stick and rudder to keep shiny side up.
Last edited by five2one on Fri Jul 20, 2018 9:36 pm, edited 2 times in total.

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Re: Should I Dump a Pile of Money on Young Son?

Post by LadyGeek » Fri Jul 20, 2018 9:24 pm

^^^ Acronym decoder:

BLUF - Bottom Line Up Front. The PowerPoint equivalent of TL;DR.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: Should I Dump a Pile of Money on Young Son?

Post by five2one » Fri Jul 20, 2018 9:33 pm

LadyGeek wrote:
Fri Jul 20, 2018 9:24 pm
^^^ Acronym decoder:

BLUF - Bottom Line Up Front. The PowerPoint equivalent of TL;DR.
Thanks, fixed it. Habit and all that.

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Re: Should I Dump a Pile of Money on Young Son?

Post by bottlecap » Fri Jul 20, 2018 9:34 pm

Purpose, please?

JT

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Re: Should I Dump a Pile of Money on Young Son?

Post by tibbitts » Fri Jul 20, 2018 9:46 pm

The OP just needs to say roughly how much money he has so the replies can be more targeted. Estate tax? Sure, maybe a problem for me too after a couple decades of 30% annual returns. Maybe that's what the OP is assuming. Being "set" means different things to different people.

In any case I don't see the advantage of gifting it all right now - more downside than upside.

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Re: Should I Dump a Pile of Money on Young Son?

Post by golfCaddy » Fri Jul 20, 2018 9:51 pm

Give it to him now. He'll spend a lot on booze, girls, and fast cars. The rest will just be squandered.

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Re: Should I Dump a Pile of Money on Young Son?

Post by Iridium » Fri Jul 20, 2018 10:42 pm

bottlecap wrote:
Fri Jul 20, 2018 9:34 pm
Purpose, please?

JT
The purpose is to save up to $400,000 in estate taxes.

If the inheritance is disclaimed then the gift is made directly from grandparent to grandchild, with stepped up basis and no impact on OP's lifetime exemption. If the inheritance is received by OP and later given (whether in life or in estate) then the amount will count against OP's lifetime exemption, and any excess will be taxed at 40%. Clever tax planning can generally work around this, but do so with transfers that are income tax inefficient. This is a one-off opportunity for OP to essentially transfer up to $1MM in excess of the lifetime exemption completely tax free, but has to be done within 9 months and cannot be put into a trust prior to being gifted.

Note that as OP intends to live beyond 2025, the relevant lifetime exemption is about $11MM per couple, not the $22MM per couple exemption that estates are currently using.

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Re: Should I Dump a Pile of Money on Young Son?

Post by davidsorensen32 » Fri Jul 20, 2018 10:58 pm

Yes ! absolutely !! Your son has proved his worth. What are you waiting for ? With his drive and hard work he could grow that money (I'm thinking entrepreneurship) much faster than stupid VTSAX
klneutral wrote:
Fri Jul 20, 2018 7:55 am
Wife and I are set and might live 30 more years whereupon estate taxes might be a concern.

Mother died and left me $1M. Considering whether to disclaim in favor of son. Would ask him to hang onto it until wife and I are both dead.

Son is nearly 24, left home after high school and has not asked for a dime since. Went to Air Force Academy, supported himself and maxed out his IRA all 4 years with little help from us. Graduated with no debt. Single.

Graduated in 4 years with math major, will finish pilot training in Nov. Is maxing out his IRA and TSP on 2d Lt pay.

Upon son's graduation, wife and I offered to pay half of new car. He declined and said he is fine with the 22 year old car we had given him and that he continues to drive, with no A/C, in TX.

Should I worry about "ruining" him by dumping $1M on him so young?

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Re: Should I Dump a Pile of Money on Young Son?

Post by BogleBike » Sat Jul 21, 2018 12:08 am

Just throwing out an idea here...why not ask him?

His response might be illuminating.

I received a smaller amount at a similar age, also due to the passing of a grandparent. The bequest went to my parent, who assigned amount X of it to me to be received as gift at time of my choosing. I chose to receive nothing at first; then a portion to defray student loans that I hadn't yet paid; then nothing. When my parent passed away, the remainder melted into the estate, which meant it was split between me and a sibling. My reasoning for the portion not received was that I preferred to have a reserve off the books, because I expected to "make it" on my own, and the only real need I had for it was in case I miscalculated.

Your son sounds more aggressive and responsible than I was at that age, but has thrift and independence in common. Who knows what he will say?

Perhaps the discussion will be as useful a bit of parenting as the gift. At this point, respect might be as valuable as money. Anyway, congrats on raising a fine son.

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Re: Should I Dump a Pile of Money on Young Son?

Post by VaR » Sat Jul 21, 2018 2:13 am

Here's some information that might provide some context that everyone might not have calculated out.

If that $1 million is invested for 30 years, it could end up as $6-8 million, or even more. Possibly less as well, but $6-8 is a good expected value for 6-7% compound annual returns. Note that by then 2.5% inflation would imply a 2.1 inflation multiplier so the estate tax exemption will be $23 million or $46 million or something else if tax law changes.

If you do disclaim and your son inherits, note that he'll likely have to pay tax on $15k-$20k of dividends or interest.

In order for estate tax to be a concern to you, your estate must be pretty large and so it seems like one of those cases where you're not "spoiling" him with your current riches and you expect to leave him what even people on this forum consider to be a large estate - $11-22 million nominal in 30 years or about $5-10 million in 2018 dollars.

In such a situation, the risks of messing with his head seem to exceed the marginal benefit of paying more in estate taxes on what is probably going to be "more than enough money". It's large enough that you'd conceivably be considering giving large sums to charity instead of maxing out your bequest to him.

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Re: Should I Dump a Pile of Money on Young Son?

Post by msk » Sat Jul 21, 2018 3:13 am

A million $ is a lot only to those who do not have it. This family has had multiples of that for the son's entire time that he is aware of finances. Let's not get carried away as if it's north of $10million.. IMHO it does depend on the estate tax angle. Why ignore $400k in taxes? What I would do in similar circumstances:

Have a chat with the kid and have him open a new brokerage account, to aid in transparency for himself.
Get him to inherit the million $ and buy a 100% stocks ETF, either US only or worldwide. Personal taste.
Withdraw 5% of portfolio annually and spend as he wishes. Never to exceed 5%. The remaining portfolio ought to keep pace with inflation forever.

He can choose to stick to the above advice or do anything else. The inheritance is his. An extra $50k p.a. is not going to change the kid much. He is already used to a higher-than-average standard of living when he was a teenager...

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Re: Should I Dump a Pile of Money on Young Son?

Post by SGM » Sat Jul 21, 2018 4:13 am

As a couple $30k per year gifts could be started now regardless what you do with the rest of the money. Those $30k gifts are not taxed and do not count towards any estate tax limits. You could set up a trust with part or all of the money. Current federal estate tax limits are over $11 million per individual. The estate tax limits doubled after January 1, 2018.

The estate tax on the OP's inheritance depends on its size, prior large gifts and on whether the death occurred in 2017 or 2018. A $1 million estate would not be taxed by the federal government unless there were prior gifts exceeding the $5.6 million in 2017 and double that in 2018.

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