My niece is a highly educated person. She holds a Ph.D. in science, has a good personality and people genuinely like her. She has worked as a freelancer for the same company for over five years. The owner of the company sends her a check every month and a 1099 at the end of the year. I have mentioned to her a few times that she should talk to the owner about simply employing her so her tax load would not be so heavy and she would get employee benefits.
However, the owner has all kinds of excuses and promises to do so, perhaps next year. And here is the problem: My niece, as smart and brilliant as she is, is not very good with her money. She got married a couple of years ago and she and her husband bought a house right away. She paid some of her husband’s credit-card debt and other expenses. As a result she got behind on her estimated taxes for this year and last year.
She also carries a high student-debt load. Her husband pays his taxes separately. His student debt is minimal, and he puts money into his 401(k). She does not have any IRA or any savings. I love my niece dearly and, being older, I would like to make her a beneficiary of my savings and investments. I am not a rich person, but I worked my whole life, and I am a good saver. Here is my dilemma: Knowing what I know, it seems foolish to make her my beneficiary.
I want to help her, but I have no idea how. I have tried to talk to her about finances, but she refuses to talk about it. She has some serious health issues, so I am hesitant to press the topic. I am at wit’s end. I have no idea what I can do and how I can help her.
The Aunt
Dear Aunt,
Here’s the brutal truth: You can’t live your niece’s life for her.
You’re at your wit’s end for that reason. There’s only so much you can do to influence your niece. You can’t go back in time and advise her on what course to choose to limit her student debt or maximize her financial prospects. You can’t undo her decision to pay off her husband’s credit-card debt at the expense of neglecting her own taxes and falling out of favor with the Internal Revenue Service.
You can’t get her to live her life the way you would like her to live it, even if it would mean a better outcome financially. You can’t force her to see the world through your eyes and your lived experience. She has made her own mistakes and she will continue to make her own mistakes. Willfulness gets us out of bed in the morning, but it also leads us to make the same errors over and over again.
You can’t get her to live her life the way you would like her to live it.
Now, understandably perhaps, you want to leave your niece, who is a kind and intelligent woman, money after you’re gone. But this raises more issues and concerns: You want to make sure that she does not squander this good fortune and, based on experience, you fear that is exactly what she will do: dig other people out of fiscal holes and dig herself into bigger ones, all while making intemperate investment decisions.
The answer to your niece’s workplace dilemma is probably to find another job. As a more senior member of the family, you can give her your opinion, even if it’s unsolicited, but you can’t expect her to follow your advice. Yes, it would be great if she had an emergency fund, a home that she and her husband could pay off over time and a 401(k) or the equivalent with an employer match so she could build up her investments. Maybe all that will happen in time.
Incentive or spendthrift trust
The best way to ensure from beyond the grave that your wishes are followed is to set up a trust. “An incentive trust is designed to encourage good financial habits,” according to the Cote Law Group, which is based in Marshfield, Mass. “Instead of unrestricted payouts, the trust can be structured to provide funds only when certain conditions are met. For example, the trust could match [your niece’s] income dollar for dollar, encouraging employment.”
Such a trust could provide funds for education, to pay off student debt, to make a down payment for a home purchase or for business investments rather than for discretionary spending, the law firm adds. It could also, for example, require your niece to complete a financial-literacy course before accessing funds. This approach helps instill financial responsibility while providing years-long financial support, it adds.
The best way to ensure your wishes are followed is to set up a trust.
A spendthrift trust, meanwhile, prevents the beneficiary from selling, borrowing against or misusing their inheritance, the Cote Law Group says. It’s useful for people who have a “history of overspending, concerns about gambling or substance abuse and/or a habit of making risky financial decisions.” With a spendthrift trust, creditors and lawsuits cannot access the funds and the beneficiary cannot demand early payouts, the law firm says.
That may not be the answer you’re looking for. Your niece is not you. She will continue to follow her own dreams and make her own mistakes, and she may allow her heart to rule over her practical instincts until the time comes when she asks herself, “How did I make these mistakes?” That may happen or it may not. In the meantime, what can you do? Continue to appreciate all the gifts she does have to offer, and lead by example instead.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
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