“I had advised him to charge 2 percent interest per annum on any advance payment.” (Photo subject is the model.) – Getty Images/iStockphoto
I have spent the last few years managing my widowed mother’s finances. She is 90 years old and her trust includes a home, an IRA that I am trying to phase down over the next five years, and other assets (mainly Treasury bonds). The trust will be divided between my sister, my brother and me, with my sister receiving 44% of the estate and my brother and I each receiving 28%. The total value of our family trust is $4 million.
Recently, my brother’s wife was diagnosed with terminal cancer and she may need long-term care or hospice care. She is not expected to live longer than a year. In a recent conversation between my brother, my wife, and I, my wife offered—without consulting me first—to make an advance of his estate to my brother. My mother might have been okay with this, but I now find myself unsure of how to proceed.
Today, my brother expressed his desire to advance his inheritance without dipping into his savings. He had previously agreed to sign any documents needed to facilitate progress. I had proposed charging him 2% interest per annum on any amount advanced, which amount would be deducted from his share of the estate and split 50/50 between my sister and me.
I’m troubled by the idea that he doesn’t want to use any of his own funds until he gets an advance. He currently has a $500,000 IRA, a $200,000 bond, and a home worth approximately $500,000. While researching this issue, I noticed that in some cases, estate advances are proportional to the amount the recipient contributes from their own funds.
I feel it would be a disservice to us and my mother to have him simply draw from the inheritance without contributing any personal resources.
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Trying to control how much your brother withdraws from his own funds is a fool’s errand. – MarketWatch Illustration
Ideally, any advances should be disclosed to all beneficiaries. Once the money is released, if it is released, your involvement ends. Regardless, he may also have to pay state estate taxes.
It is not uncommon for an advance to be treated as a loan, accrued interest and, most importantly, offset against a future estate. That’s what careful estate planning is. In other words, any progress should be subject to two conditions.
First, it should undoubtedly be with your mother’s express permission, assuming she is of sound mind, has the capacity to make legal and financial decisions, and is not being forced to make decisions in any way. She may or may not accept your suggestion.
Of course, your brother prefers “no strings attached.” Trying to control the amount of money your brother withdraws from his own funds—if your mother releases the money without limiting his personal financial situation—is an impossible task.
He has enough on his plate – and I suspect you do too – and you don’t want to interfere with his financial life. Your mother, her attorney, your brother and you can discuss whether any interest should be paid from the remainder of the estate now or in the future.
Requiring your brother to spend his IRA, or liquidate bonds, mortgage, or sell his house before getting access to the money, without strings attached, will almost certainly be completely unenforceable and, even worse, will create resentment and discord in your family and damage relationships.
You also need to be clear about your role in the situation. Do you help your mother pay her bills and manage her income and expenses? Or do you officially hold legal power of attorney or even a health care directive for your mother? Either way, your role will be both a consulting and management role.
There is a big difference between temporarily helping your mother with her financial affairs and holding a power of attorney or taking on an official role overseeing the trust: both of the latter roles come with fiduciary responsibilities, so you are legally required to act in your mother’s best interests.
Additional questions were asked at your brother’s request. How would you account for the 28% that may or may not be given to your brother in advance? Does your mother plan to use the trust to pay for any long-term care expenses, or does she have long-term care insurance?
What about her other living expenses? Does she have an emergency fund worth at least a year’s worth of expenses? For example, this would help her if the stock market takes a downturn and she decides not to withdraw money from her brokerage account.
What if your mother becomes incapacitated? Make sure trusted members of your family have a durable power of attorney, health care proxy, and HIPAA authorization so caregivers can access someone’s medical data.
For amounts up to $4 million, a revocable living trust is the right decision. Such a trust will help your family avoid probate after your mother’s death. Trusts are good for controlling distributions; this can be useful if your brother is being sued for medical debt.
So what now? Your mother, on the advice of her attorney, may choose to treat the advance as a loan and charge interest as you advised. The 2% you suggest is a modest rate – just a fraction of the rates on most personal loans and below current inflation rates.
Bottom line: Questions about why one beneficiary is receiving funds now while others are waiting, and how this affects trust solvency, especially if your mother needs care, are valid questions worth asking. But one day, your mother will make her own decision.
Micromanaging your brother’s life after an inheritance will only bring discord and frustration to your relationship.
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Previous columns by Quentin Fottrell:
‘This looks absolutely crazy’: Our kids pay rent on our investment property. Our lawyers said they should still buy us out.
‘I’m growing resentful’: My husband of 10 years owns $1 million and a car worth $200,000. Why doesn’t he give me money?
“This feels like an opportunity”: I’m 55 years old, making $78,000, and have no kids. My mom gave me $10,000. what should I do?
