Protecting a young adult from his money?

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CFIT
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Protecting a young adult from his money?

Post by CFIT » Thu Jul 30, 2015 1:14 pm

A friend of mine is in a quandary regarding college funds for her non-minor son. Over the years, her father (the son's grandfather) put money into investments that were to provide a college education for the young man. Unfortunately the son has struggled with mental health issues (ADHD/bipolar) since he was very young, barely made it through high school, and has no thought of going to college. He has a sweet side and people are drawn to him, yet is impulsive, makes bad decisions based on overwhelming emotions, and is unable to stick with any kind of work for more than a few days. Most recently he was somehow able to purchase and insure a used sports car despite the fact of having no real job.

This would be a sad story on its own, but what makes it worse is that, unknown to him, he has $100k waiting for him in the college fund. The money became his when he turned 18. His mother has access to the funds and has left them untouched. She worries, with good reason, that if he had access to the money it would be spent very rapidly in ways that would likely be destructive to her son.

I don't think that this situation can go on forever. One catalyst might be the inevitable repossession of the car. I would guess that the college money is in an account associated with his SSN and might be discovered as collectors go after the debt.

Does anyone have and advice about this situation? I like to believe that I can see many angles to a situation but I can't come up with anything that looks like a happy ending. There may ultimately be nothing to do other than let the son have access to the money and hope for the best.

Thanks.

mhalley
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Re: Protecting a young adult from his money?

Post by mhalley » Thu Jul 30, 2015 1:33 pm

What kind of an account is the money in? If it is a utma account, it is his money and it is stealing to not give it to him. Perhaps the son could be sent to dave ramseys fpu, then given the money. Here is a wsj article about it.
http://www.wsj.com/articles/SB100014240 ... 4220788392
One option is to set up a family limited partnership. http://beginnersinvest.about.com/od/ugm ... a-UTMA.htm
"That means you are going to have to get creative and probably employ a decent attorney. For example, some parents are fond of using family limited partnerships. The custodian takes the UTMA money and buys limited partnership units that they (the parents) control via liquidity restrictions in the operating agreement. Others opt for things such as equity indexed variable annuity contracts. If the child can make a reasonable claim in court, though, that this was a breach of your duty by restricting him or her from the assets they owned, you could be in for a long, perhaps bitter, fight. You very well might lose.

Another option is to use the super power of incentive. If you have a considerable estate, or plan on continuing making gifts to the child, you can convince them to sign over their assets to one of these restricted holdings or else they won't ever see another penny. My own attorney has stories about this as it is done fairly often. Mom and Dad schedule a meeting in the big conference room and say, "You know, son, we realize you are now entitled to touch this nice pile of money we set aside for you. But if you don't put it into this real estate partnership over here, this much bigger pile that will someday be yours ... well, you won't ever see a cent of it." And in almost every single case, the now-adult child signs on the dotted line."

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Phineas J. Whoopee
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Re: Protecting a young adult from his money?

Post by Phineas J. Whoopee » Thu Jul 30, 2015 1:35 pm

It sounds like a very bad situation, to which there may not be a good response.

If the non-minor son hasn't been judged incompetent by a court, I don't see there's much to be done, since you've already said the resources are his property. If there does turn out to be a sports car loan problem some of the money may already be committed, if accounted for on an accrual basis.

Can the friend contact an attorney who specializes in such issues? There must be some, and although they'll not work for free, it shouldn't take an enormous bite out of $100,000.

Does the state, or county, or city, or whatever offer case management? Even if one wants to bear all the costs themselves, such a resource might be able to provide good references with respect to who to go to. Maybe a local church or charity can help with a referral.

Best of luck to friend and son alike, and I hope other posters chime in with better suggestions than mine.

PJW

downshiftme
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Re: Protecting a young adult from his money?

Post by downshiftme » Thu Jul 30, 2015 1:47 pm

While a UTMA or UGMA account is technically owned by the minor at age 18 or 21, depending on details and state, there is no mechanism that specifically alerts the kid to the pile of money. There will still be account statements and tax implications, but many 18-21 year olds are not particularly aware of mail arriving at the house and most banks will take no action until someone attempts to use the account after the age of majority. Keeping the money secure by simply not disclosing it's existence isn't a foolproof process, but it may be the best option.

alex_686
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Re: Protecting a young adult from his money?

Post by alex_686 » Thu Jul 30, 2015 1:54 pm

I have seen this situation before. Come up with a plan then get the son's buy in.

The money is his. Trying to keep it away from him is going to generate resentment and mistrust. This would put emotional stress on family and I suspect would ultimately lead to financial failure.

Try to address the behavior impulse control issues by "locking up" the money. You can't "lock it up" legally but you can put in steps that slows down everything.

Most of the time we try to overcome behavioral basis in investing. In this case embrace them.
So have the family lawyer present the son with the idea that the funds be placed in a trust to be protected from bankruptcy. Or set it up that he gets the dividends to make sure that the principle is protected. Have him put 50k in a "down payment" fund for a house down the line. All of these suggestions, as a total return guy, is pure crock. However, if you get people committed and invested in a plan they tend to buy into the plan.

FYI, I know a woman in her 30s that sounds like the son. She partied hard with the 200k she inherited when she was 18. She went bust in 2 years. This woke her up, went to college, and blossomed. She has few regrets which surprised me. Going bust for her was the positive transformative experience in her life.

traveltoomuch
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Re: Protecting a young adult from his money?

Post by traveltoomuch » Thu Jul 30, 2015 2:26 pm

How, exactly, is the account titled right now? You say his mother has "access", but does it have a JWROS title or....?

Jack FFR1846
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Re: Protecting a young adult from his money?

Post by Jack FFR1846 » Thu Jul 30, 2015 2:51 pm

Whoever sold him the car likely set up financing using the car itself as collateral. If he isn't competent to understand and pay the loan payments, they'll repo the car. Not go looking for other assets.
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littlebird
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Re: Protecting a young adult from his money?

Post by littlebird » Thu Jul 30, 2015 3:01 pm

The mom could hire a lawyer and go to court to obtain a conservatorship/guardianship over the son. Depends on how incompetent he actually is. Could be expensive and disruptive of family relations, but as far as I know, that's the only way to legally control his assets short of his being told about it and agreeing to let Mom control it.

FireProof
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Re: Protecting a young adult from his money?

Post by FireProof » Thu Jul 30, 2015 3:18 pm

Talk of trying to seize control of the money is ridiculous. If being bad with money were grounds for mental incapacity, most Americans would be under guardianship. Having someone forcibly declared mentally incompetent will destroy his life and any family relationship a lot worse than a few rash purchases ever will.

Dulocracy
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Re: Protecting a young adult from his money?

Post by Dulocracy » Thu Jul 30, 2015 3:44 pm

"Protecting a young adult from his money?"

"Protecting his money from a young adult?"

No matter how you phrase it, the key here is "his money". There may be significant legal ramifications for her to do anything with the money other than give it to him. Step one would be consult an attorney to understand the laws of your state. The attorney will provide options (or tell her there are none). It is worth a consultation fee to make sure 1) she does not go to jail 2) she does not incur liability (for investing it improperly or loss of potential income or other causes of action that may arise from her holding the money) and 3) (yes, last in line) whether or not there is something that can be done to protect him.

I may not think smoking is a good idea, but I do not have the right to steal my friend's cigarettes to protect him.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

Dulocracy
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Re: Protecting a young adult from his money?

Post by Dulocracy » Thu Jul 30, 2015 3:47 pm

littlebird wrote:The mom could hire a lawyer and go to court to obtain a conservatorship/guardianship over the son.
From the details provided, probably not. It is no small deal to get a guardianship over someone. You are legally stripping them of their rights; courts do not do this lightly. As has been stated, being bad with money is not enough. If he no longer knows who he is, you get a guardianship. If he is on a long journey to find himself, you just be as supportive as you can as he makes mistakes.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

goingup
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Re: Protecting a young adult from his money?

Post by goingup » Thu Jul 30, 2015 6:55 pm

This is a tough issue. My opinion is colored by the fact that I have known such a young man. If he had had access to $100,000 he would have killed himself even sooner than he did. To stall a bit and wait for this young man's brain to mature might be a sin of omission I could live with.

CFIT
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Re: Protecting a young adult from his money?

Post by CFIT » Fri Jul 31, 2015 10:39 am

Thanks for the advice and suggestions. I will pass them along.

Rwentworth
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Re: Protecting a young adult from his money?

Post by Rwentworth » Fri Jul 31, 2015 1:11 pm

Unfortunately, I don't think there is much you can do. I think the best idea would get him to buy into the idea of using the money to purchase a house. My father was bi-polar and was also very careless with his money and developed a gambling problem, which ultimately led to his demise. It's hard to rationalize with bi-polar people.

jackholloway
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Re: Protecting a young adult from his money?

Post by jackholloway » Fri Jul 31, 2015 1:48 pm

This may sound judgmental, but I strongly believe that we are making choices when we title assets, and we have to live with those choices.

I was left $15k by my grandmother at 16. It bought a car, a computer, was a security deposit on a house I rented. It also supported my living above my means between college and grad school. There was some good, and some bad, and I really learned from the bad - frittering away $5k, and not knowing where it went, really made an impression. I never spent more than I made again, including when that required selling bodily fluids to pay for books.

At the end of the day, the money is legally his. If you really have concerns, you should try to convince him either to put it away voluntarily in a trust, with full disclosure of what that protects against, or sock it away in a long term CD or other investment that has a psychological hurdle to breaking. If you can get across why this is protect him too, he might go along.

The big family meetings where the parents "take his money for his own good" or "threaten him with disinheritance until he does what they want" rarely end well, and I have seen both more than once among family and friends. I have some bipolar people in my extended family, and they can hold a grudge.

Want a nightmare scenario? Parents push really hard, he agrees during an up phase, then gets into a down phase and runs into money problems. He lawyers up, and argues to the court that the family was trying to steal his money. The court may decide that it has merit, especially if he can sell the story that he was promised a big inheritance that never came through. Even though the court seems likely to discount the inheritance story, they could easily decide that the family took advantage of their own kin, and that the parents owe him what he would have made with for a decade, plus the attorney's fees. This can put the parent's assets at risk in a big way.

MathWizard
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Re: Protecting a young adult from his money?

Post by MathWizard » Fri Jul 31, 2015 7:53 pm

Not a lot you can do.

My wife and I made our wills so that the boys did not get the insurance money at
18 if we died. We had it put into a trust with the trustee paying College and living expenses.

The kids got half the balance at 25 and 30.

I was afraid of what that much money would do to them at that age.

sambb
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Re: Protecting a young adult from his money?

Post by sambb » Fri Jul 31, 2015 8:02 pm

not a lot you can do. And my no means is this sort of thing limited to young people. Older ones can also have known cognitive decline that can result in irrational financial decisions. It can be a problem of any age.

Swampy
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Re: Protecting a young adult from his money?

Post by Swampy » Fri Jul 31, 2015 8:12 pm

If the parents can access the money before he turns 18, I'd encourage them to do so - IMMEDIATELY to keep it out of his reach. Mind you, this is still the child's money - NOT the parent's - but it has to be handled much like a loaded gun when a minor is involved. SAFETY FIRST.

I'm no great fan of lawyers, but there is no way around it, they'll need the help of a lawyer to set up a special needs trust with special provisions.

It'll cost several thousand bucks, but this is preferable to the alternative.


Revised:

See corrected answer below.
Last edited by Swampy on Sat Aug 01, 2015 8:17 am, edited 1 time in total.
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mhalley
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Re: Protecting a young adult from his money?

Post by mhalley » Fri Jul 31, 2015 8:16 pm

OP said the son was over 18, which limits anything that could have been done. There are a lot more options before the child reaches majority.
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littlebird
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Re: Protecting a young adult from his money?

Post by littlebird » Fri Jul 31, 2015 8:32 pm

Swampy wrote:If the parents can access the money before he turns 18, I'd encourage them to do so - IMMEDIATELY to keep it out of his reach. Mind you, this is still the child's money - NOT the parent's - but it has to be handled much like a loaded gun when a minor is involved. SAFETY FIRST.

I'm no great fan of lawyers, but there is no way around it, they'll need the help of a lawyer to set up a special needs trust with special provisions.

It'll cost several thousand bucks, but this is preferable to the alternative.
THEY cannot set up a special needs trust with HIS money. (Even if he agreed to it) There is only 1 legal way to separate him from his own money and I outlined it above. Like it or not.

dolphinsaremammals
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Re: Protecting a young adult from his money?

Post by dolphinsaremammals » Fri Jul 31, 2015 9:36 pm

I am under the impression that his issues are treatable. Why isn't that what's being addressed?"

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Watty
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Re: Protecting a young adult from his money?

Post by Watty » Fri Jul 31, 2015 9:59 pm

One other thing to look into is how the taxes have been paid on the earnings from that account if it was in the kids name.

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Re: Protecting a young adult from his money?

Post by itstoomuch » Fri Jul 31, 2015 10:13 pm

I had to sign several UGMA release forms, and medallion notary, to relinquish custodial responsibility, for son (22) to assume full and sole ownership.
YMMV.
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celia
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Re: Protecting a young adult from his money?

Post by celia » Sat Aug 01, 2015 12:31 am

CFIT wrote:A friend of mine is in a quandary regarding college funds for her non-minor son. Over the years, her father (the son's grandfather) put money into investments that were to provide a college education for the young man.
How is the "education" requirement specified and enforced? The money may not be available to use for spending, partnership units, real estate or cars.

If it is NOT used for educations, is an alternate objective spelled out?

I agree that some legal advice is needed here.
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Re: Protecting a young adult from his money?

Post by Swampy » Sat Aug 01, 2015 8:13 am

Sorry, I missed the part about "non-minor."

Correct, the only possibility to protect this young person from themselves is to go through a declaration of incompetency via the medico-legal system and the courts.

After re-reading it, there seems to be very little that can be done at this point. Even with trying to obtain the guardianship, there is no guarantee that the court will declare this young man incompetent. In my state, the judge requests separate medical-psychiatric 'expert witness' exams by three unrelated qualified professionals of the individual in question and appoints an attorney to represent their interests against those of the person seeking such a declaration.

It is expensive and it can get very ugly.
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Re: Protecting a young adult from his money?

Post by InvestorNewb » Sat Aug 01, 2015 9:05 am

FireProof wrote:Talk of trying to seize control of the money is ridiculous. If being bad with money were grounds for mental incapacity, most Americans would be under guardianship. Having someone forcibly declared mentally incompetent will destroy his life and any family relationship a lot worse than a few rash purchases ever will.
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ingenue
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Re: Protecting a young adult from his money?

Post by ingenue » Sat Aug 01, 2015 9:30 pm

I think the first step is to make sure this young man is getting adequate treatment for his conditions. The impulsive and irrational behavior associated with ADHD and bipolar can result in decisions a lot worse than blowing through a financial windfall.

If medical treatment can get him to a point where he can make rational, non-impulsive decisions, I think you would then be able to work with him and an attorney to set up a trust, to protect himself from possible future episodes of impulsive and irrational financial behavior.

People who are symptomatic for these illnesses simultaneously have poor insight regarding the self-destructiveness of their behavior. They don't recognize it as abnormal while symptomatic, but they can recognize past behavior as a problem after their symptoms have been controlled. That is when you should ask them to safeguard their future.

-ingenue
Note: I am not a lawyer, doctor, financial professional, or mental health professional. Use of my opinions, above, is at your own risk.

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Re: Protecting a young adult from his money?

Post by mollymillions » Mon Aug 03, 2015 12:54 pm

ingenue wrote:I think the first step is to make sure this young man is getting adequate treatment for his conditions. The impulsive and irrational behavior associated with ADHD and bipolar can result in decisions a lot worse than blowing through a financial windfall.

If medical treatment can get him to a point where he can make rational, non-impulsive decisions, I think you would then be able to work with him and an attorney to set up a trust, to protect himself from possible future episodes of impulsive and irrational financial behavior.

People who are symptomatic for these illnesses simultaneously have poor insight regarding the self-destructiveness of their behavior. They don't recognize it as abnormal while symptomatic, but they can recognize past behavior as a problem after their symptoms have been controlled. That is when you should ask them to safeguard their future.

-ingenue
Note: I am not a lawyer, doctor, financial professional, or mental health professional. Use of my opinions, above, is at your own risk.
This is good advice. Unfortunately success via this path is predicated upon the subject responding favorably to treatment and being cooperative. This is not a sure thing, and lawyers and doctors both need to be consulted on the subject. I suspect the young man has, by this point, undergone years of treatment for his conditions with mixed results, which is very common.

A family member of mine is diagnosed with similar conditions, and she has never responded very well to treatment. She still struggles with very poor decision making and other debilitating issues, even on 'good' days. She has been on SSI disability for several years, and early in that process she was placed under the financial guardianship of her mother by the court, at her own request. Their relationship grew increasingly strained while this arrangement lasted, and was eventually rescinded after mutual request. Simple solutions to situations involving mental illness are unfortunately rare.

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