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SENIOR ADVOCATE

By Liza Horvath

 

Emergency Funds for Children

 

Most attorneys and other professionals advise against it but the truth is that parents very often provide continuing financial support to adult children. Setting aside any discussion about the psychological or dependency issues that ongoing financial support of an adult child may create, the fact is that it happens all the time. A daughter divorces and needs help so mom sends her a stipend every month. A son lost his business in the recession and needs help getting back on his feet so funds are routinely sent to him. Without the help of parents, some children simply would not make ends meet.

 

When adult children are living so close to the edge, some parents are rightly concerned that when they die a needy child may be without funds during the time it takes to have an executor appointed by the court or while a trustee gathers assets and sets up a bank account. Without funds the child could fall deeper into financial crisis or be unable to travel home to attend the funeral services of their parent.

 

Some parents address this concern by setting up a “pay on death” account believing that funds will be immediately available to their child (the payee) upon their death. Unfortunately, this may not work as intended. Banks require a death certificate to close a POD account and your death certificate may not be issued or available for weeks. So, with a goal of having funds immediately available to adult children upon death, what are the options?

 

Joint tenancy bank accounts set up between a parent and a child may be an option. These accounts are accessible to both “tenants” – the parent and the child at any time – whether the parent is living or deceased. While this account has the benefit of being available – it has drawbacks, as well. Because it is accessible at any time by the child, some parents discover that their child has withdrawn the funds long before the “emergency” has occurred. After all, if a child is having financial difficulties to the extent that a monthly stipend is needed to keep them afloat, chances are they may lack the discipline needed to resist taking the money out of the account prematurely. Additionally, joint accounts held in the names of the parent and child are exposed to the creditors of both. If a child has creditor problems, you could find your emergency account has been levied or worse – claimed by the child’s creditor.

 

Giving cash to a child and asking them to save it to use at your death may have the same “premature expenditure” challenges that a joint tenancy account faces. So, what can be done to make sure funds are available to a child so they will not incur hardship on your death?

 

First, make sure your successor trustee or proposed executor is aware of your concern and that they have clear and legal direction from you to make an immediate distribution to the child. Then, “fund” the request by either setting up a joint account with your trustee or executor, making cash available to them or giving them a cashier’s check to pass on to the son or daughter at the time of your death.

 

A better solution to the problem is to wean an adult child off of monthly support – but, short of that, work with your attorney and your personal representative to create an agreeable plan to provide the funds needed.     

Liza Horvath has over 30 years experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. If you have a questions call (831)646-5262 or email liza@montereytrust.com

 


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