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| Best Practices |
Passing the Buck
Mary Lowengard
07/01/2004
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Financial advisors say that staggering our
disbursements may help us avoid encumbering a young adult. Attorney Gideon
Rothschild, a partner with New York-based Moses and Singer who cochairs the
firm’s Estate Planning and Wealth Preservation Group, estimates that half of the
plans he creates dispense funds incrementally over a decade or more. His clients
usually give one-third to children when they reach age 25 or 30, half the
remaining balance five years later and a final installment five years after
that. Thus, all funds intended for disbursement are allocated by age 40.
Byron E. Woodman Jr., founder of Monument Financial Advisors and a trust and
estate lawyer in Boston, cautions against making allocations at specific times
to maximize the tax advantages of the gift or bequest. “It’s all about getting
the right amounts to the right people at the right time,” he says. “You don’t
want it to be too little too late or too much too soon.” Woodman believes that
the “three bumps” system of allocation can be further improved by dividing each
allocation and stashing a portion away in a trust for distribution at a much
later time, perhaps even as a nest egg for the child’s twilight years. “It’s a
safety net that can be varied based on the individual child’s needs.” This
method has been well received among his clients and their children.
Another
strategy is to provide funds for specific uses. For example, parents might
divide disbursements into an allocation for housing, another for education and
another no-strings-attached sum for whatever use the child sees fit, says
Susan Bradley, a financial planner in Palm Beach and founder of the Sudden Money
Institute. “This way they make sure that their values are heard loud and clear.”
One child might decide to use the housing money to buy a home outright, while
another child might make a down payment on an apartment. The annual allocation
might allow a young mother to stay home for a few years with her children;
someone else might use it to start a business. “The parents establish what’s
important, give the unrestricted amount and then say, ‘Now go create a life for
yourself,’” Bradley says. Of course, there is no guarantee that the child will
not spend this amount frivolously, but parents can always reserve their right to
cut back or even suspend the annual allocation.
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