Gifts made with the best intentions but without clear documentation can haunt a family long after the giver has passed. Financial gifts to children may have long-term ramifications financially and consequentially for the giver’s family.
A consultation with a legal or accounting professional is a good idea, and can save a family conflict and future expense. Take this hypothetical situation:
A father builds a successful business. When he retires, the oldest of his five children takes it over. Over the next ten years, Junior has difficulty in the operations and viability of the business. So, “Pop” gives Junior ongoing infusions of money.
These funds are deposited in the business directly. Pop does this to benefit his son and to perpetuate the business he created.
Although Pop and Junior discuss the intention of the infusions, the characterization of the infusions are not clearly made or documented. Are they gifts to Junior, or are they investments in the business?
Pop passes away with a will that appoints Junior the executor, and provides that each of his children shall receive an equal share of his estate, which includes real estate and investments and assets unrelated to the business. The other kids take the position that the monies put into the business should be returned to the estate. The son (and other third parties) know that the father meant those advances to be gifts.
Now, the children are at odds with one another and family relationships may be harmed for the remainder of the lives of the intended beneficiaries. This certainly was not the father’s intention! Furthermore, it may be costly to have the court determine the outcome of these disputes.
Had father and son consulted with the family attorney or accountant, they would have been advised about appropriate documentation clarifying the father’s intention for the gifts. There would have been memorialization of the gifting, with no confusion later.
The moral of the story is to not only look a gift horse in the mouth, but to follow through with written instructions in order prevent problems that readily can’t be answered unless one believes in séances.