The Imprudent Child – John Train Broadside (original) (raw)

Bill March had prospered in the family publishing business, which was started by his grandfather. Alas, his wife and he are driven to distraction by their youngest son, Billy. Their two older boys are sensible and are getting ahead in life, but Billy can’t get settled. He almost didn’t make it into college, let alone out again. His mother ushered Billy around to one institution after another, but he didn’t take to any of them. Finally, he found one he liked well enough and staggered through with barely passing grades. Then he had trouble getting a job: when the interviewers saw his record, they lost interest.

But his expenses…that was another story! They were practically a growth industry. Billy moved into his own apartment and pretty soon began appealing to his father for emergency help every month. He had to have a DVD…all his friends did. His high-fi equipment kept breaking down…surely it would be cheaper in the end to get a better set instead of endlessly repairing the set he’d been given two years earlier, which he hadn’t maintained properly.

Finally Billy got a marginal job in an upscale men’s clothing store. Even then his father still had to keep bailing him out. He loaned money to friends who had no intention of paying it back. Tempted by employee discounts, he bought French sportswear and Italian shoes he didn’t need. He tried to get his father to back business ventures that his friends cooked up. One wanted to start an art gallery, but he knew almost nothing about art! With great difficulty, Bill March was able to help his son work out a budget and impose some order on his financial affairs, but it was an endless struggle. Billy just couldn’t hold on to money.

Then came a blockbuster. The bank announced that Billy’s grandfather’s trust was going to be distributed to Billy’s generation. His share would be $2 million. Bill March was desperate. Billy would need that money someday, and it wouldn’t be there. Sure as shooting, he’d squander it.

Bill consulted some friends and his banker. None had a suggestion that seemed likely to work. Finally his family lawyer came up with a plan. A revocable trust for Billy would be created, which his inheritance would go into. Such a trust has no tax effect. The trustees would be Billy himself, plus his father—whom he trusted, in spite of their arguments—and his maternal uncle, an older man whom he dearly loved. The trust could be revoked only by a majority of the three trustees. The money would be prudently managed by an investment advisor, and Billy would get the income. To withdraw capital, though, he’d have to convince one of the other trustees to go along with him. They’d do so for medical crises and such and for his children’s education, but not for day-to-day expenses. Those would have to wait until the income built up.

The lawyer prepared the instrument and wrote out a one-page summary of its main provisions. Then Bill March and Billy’s uncle took him into Bill’s study one evening and explained the idea. He needed some time to understand it, but somewhat to their surprise, he saw the point of the trust in due course and liked it. “Where do I sign?” he asked.

The funny thing is that improvident children usually know that they’re not competent to manage their money and welcome a way out of that responsibility. Aside from anything else, it gets their importunate friends off their back. So a revocable trust like Billy’s can be a great relief. It also takes the pressure off the father, since instead of having constant struggles with the child, he can invoke the other trustee and even the investment adviser as authorities for not releasing more money. One lawyer who specializes in family trust work tells me that he has instituted fourteen successful revocable trusts of this type. My experience is more limited, but still, I’ve never known it to fail. The young person may regret the arrangement in later years and could perhaps succeed in breaking it in court, but almost never does.

However, one caveat: the whole scenario must be carefully thought out ahead of time. Don’t try to spring it on the child in a hurry without having mastered the provisions of the trust and then having asked the lawyer all the questions you can think of. Be sure the one-page summary warns of any disadvantages to the settlor, notably loss of control, and that those points are understood. Ahead of the meeting, discuss what you’re going to say with the other older trustee—who must be a family friend in whom the child has confidence.

May 1990