Many parents of adult children are now living with a new phenomenon in American culture: the financially dependent adult child. They raised their children and paid their college expenses, only to have their children return home to live or repeatedly borrow money for daily living expenses. Sound familiar?
In our society, it is not uncommon for parents to be asked to help their adult children make up the financial shortfall in monthly living expenses long after such children have turned 30 and in some cases even 40 years of age. While most parents would obviously prefer their son or daughter be financially independent, many have opted to continue assisting their children in adulthood.
If you are the parent of an adult child who depends on you for financial support, you may be concerned about how your son or daughter will survive after your death. There are many estate planning methods you can use to provide your some measure of financial security for your child. For an overview of estate planning for parents, review our free Estate Planning Guide for Parents. See parent's estate plan.
Preparing Your Adult Child
While proper estate planning allows many parents to provide some financial help to their children, most parents are unable to leave enough money to their children to make them financially secure. Ultimately, your son or daughter will have to learn to survive financially without your help after you are gone. Sometimes it is very difficult for a parent to communicate this to an adult child who is accustomed to relying on help from Mom or Dad. One of the best books for parents dealing with an adult child who relies on them too much is Setting Boundaries with Your Adult Children: Six Steps to Hope and Healing for Struggling Parents. It also addresses some of the most difficult challenges parents face, such as when your dependent child has their own children, when drugs or alcohol are involved, and stepchildren. If one of your goals is to have your son or daughter become more responsible, Setting Boundaries with Your Adult Children is highly recommended.
Note: This article is not intended to address estate planning for parents of a disabled or special needs child. For information on estate planning for parents of an adult child with disabilities, see special needs trusts.
Video With Great Advice for Parents
Estate Planning Strategies
The following are estate planning strategies that may be appropriate for the parent of a financially dependent adult child:
1. One of the best estate planning methods available to the parent of a financially dependent child is a spendthrift trust. If you are concerned about your child spending through a lump sum inheritance too quickly, you can arrange for the inheritance to be held in trust and disbursed by a trustee according to the terms of the trust. Consult an estate planning attorney about how to establish a spendthrift trust.
2. Another excellent method of providing financial security for an adult child as part of your estate plan is a life insurance trust. Instead of having life insurance proceeds paid directly to your son or daughter, the proceeds can be managed by a trustee and disbursed to your child according to terms you establish in the trust, such as incrementally, upon reaching a certain age or in periodic payments for life. Life insurance trusts may also be used to address other estate planning concerns such as estate taxes.
Due to the administrative burdens and costs associated with trusts, people with smaller estates sometimes prefer to use settlement options available under life insurance policies instead of establishing a trust. Discuss your estate with your life insurance agent and estate planning attorney to determine how ownership of life insurance should be structured in your situation.
3. If you have more than one child or if you have stepchildren, providing for a financially dependent adult child in your estate plan is more complicated. If you are concerned about protecting the inheritance of one child from other heirs, see adult child's inheritance. If you made loans to one child but not others and want to address that in your estate plan, or have other reasons for leaving your children unequal shares of your estate, see unequal shares. For information on the inheritance rights of stepchildren, see blended families.
4. If your adult child is struggling to manage his or her financial affairs, you should name someone else as executor of your estate and trustee of any trust you create as part of your estate plan. Appoint a person to administer your estate who will act in the best interest of your children but who will also be able to be firm in response to any demands your children may make that are contrary to your last wishes.
. It also addresses some of the most difficult challenges parents face, such as when your dependent child has their own children, when drugs or alcohol are involved, and stepchildren. If one of your goals is to have your son or daughter become more responsible,