Financial Fairness And Kids

As part of our recent estate planning, our assets will be split 50/50 between our kids. That seems fair, but how equally have we provided support, or will we provide support, during our lifetimes?

“…if that scorecard of lifetime gifts isn’t roughly equal at the time of the parents’ death, then there’s a problem. Not a legal problem — a family problem.”

So says Jeffrey Condon, co-author of Beyond the Grave: The Right Way and Wrong Way of Leaving Money to Your Children (and Others) and co-founder of Condon and Condon law firm in Santa Monica, CA.

Financial fairness when it comes to raising children (including adult children) has been the subject, not only of books like Condon’s, but numerous articles:

• “Thinking about giving money to adult children? Think again.” – New York Times (where the Condon quote is cited)
• “Is it OK to give more financial help to one grown child than another”? – CBS Marketwatch
• “Should you treat your kids equally in your will?” – Kiplinger

We treated our kids equally in our wills

When we were young parents, we put a boilerplate will together just to ensure our guardian of choice was named for our kids. That estate plan split everything 50/50, down the middle between our two children. Once our youngest turned 18 and legally became an adult, we updated our estate plans to reflect the changes that almost two decades inevitably bring – e.g., changes to our assets, required documents like healthcare proxies and powers of attorneys for our now-adult kids.

We still decided on splitting everything 50/50 in terms of dollars. We did give our oldest more responsibility as successor manager to our LLC’s, secondary power of attorney and secondary healthcare proxy. With two each of LLC’s, powers of attorney and healthcare proxies, we could have split these responsibilities 50/50. However, our oldest is better suited for the tasks. Of course, we discussed it with her first, and true to our suspicions, she seemed unflappable about her role.

Given the additional work she would need to do, should we compensate that? I do think about it, and perhaps we will make some arrangement. But at this point, we are focused on tying up all the loose ends for our updated estate plan – it has been an adventure retitling our real estate and other assets. I hadn’t thought about writing in a compensation element, and I don’t want to add any more changes to our estate plan right now.

Perhaps compensation for the estate plan work comes early – in adulthood support

Our youngest is still in college, so how much help she’ll need to be self-sufficient in adulthood is still TBD. However, our oldest is two years after graduating from college and still getting financial support from us to varying degrees, depending on how business is going. Currently she lives in our New York City apartment, is on our cell phone plan and uses our online grocery delivery account.

The apartment is the biggest expense, but we bought it so that we would always have a place in New York City. Having her stay there doesn’t cost us extra (perhaps a small uptick in utilities), and she maintains the place while we’re gone. She also uses the second bedroom, so our stuff remains plug and play when we drop in for a visit. We could charge her rent, and she has offered, but we don’t need the money and know she’s a good saver with what money she does earn, so we haven’t gone down that road. If we ever want to sell the place, that’s when we’d have to tackle what to do with the apartment.

The cell phone is a family plan, and keeping her on there saves 80% or possibly more over what she would have to pay for a solo account, so it makes sense to keep her on there. I suppose we could charge it back to her too, but like rent, it seems more trouble than it’s worth.

The online grocery account is a new expense since the pandemic. Formerly, she did her own grocery shopping IRL like most people. I’m glad she can use our account because we’re longtime customers and have a reserved delivery spot. Getting grocery delivery in New York City during the height of the pandemic was like landing tickets to Hamilton!

The groceries are a bigger expense than the cell phone, so depending on how long the pandemic goes on, I may ask her to switch the card on file to her credit card. But perhaps this is the compensation for the estate plan work.

The adulthood support equalizes what we paid in college support

We don’t mind giving our oldest financial support now because her college expenses were next to nothing. She attended a local college, so lived at home for most of the time. She also got a full tuition scholarship, so we paid nothing at a time that college tuition was running $15,000 to $50,000 per year (city v. private). Yes, the cost of four years of college can be as much as buying a house.

In fact, what our youngest will spend on her private college is about equivalent to what we spent for our Bronx apartment! Even though our youngest got some scholarship money, because she elected to go to a private college, the remaining balance owed is still tens of thousands per year. Right now, she’s borrowing that money, and we’ll decide after she graduates how much she’ll repay and how much we will. But if we repay the whole amount of college debt for our youngest, and gift the New York City apartment to our oldest, then we’ll still keep the scorecard even.

Childhood expenses are also a factor when expensive extra-curriculars are involved

Both of our children were involved in dance activities, which entails specialty clothing (the cost of ponte shoes really adds up!) and several classes per week. In addition, our youngest branched out into musical theatre, which include acting, singing and stage productions. If I compare these expenses, our oldest gets shortchanged, probably by several thousand dollars.

Of course, you could also look at clothing, food, medical and other expenses that will likely differ among children. Keeping the financial scorecard even is difficult with absolutely certainty. I think both of our kids would say that we were behind them 100%, and they were able to wholeheartedly pursue their interests. In that way, childhood spending is still 50/50.

Our focus with money and kids is a longer timeframe – multi-generational wealth

Our kids have a long way to go, and we’d like to help them for as long as we can. In fact, we’re managing our portfolio with multiple generations in mind. Rental real estate is a great way to build an income stream that matches inflation.

Having real estate in different geographies – and in places that are nice to visit – is another way to have income, plus family trips if our family grows enough that we want to meet up in fun destinations.

We didn’t buy real estate or invest abroad as a family legacy, but it’s a very nice plus.