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Investing in Family Can Pay Dividends

Funds should enhance, not diminish, individual potential.

By Stacy Allred and Matthew Wesley

We’re in a new era of family interdependencies. In recent years, approximately 60 percent of Americans aged 50 and older have provided financial assistance to members of their family, including adult children, parents, grandchildren, siblings or other relatives.

Presently, many adult children and grandchildren are struggling with careers, tuition costs and a variety of other financial challenges. At the same time, large numbers of clients simply don’t know how to say “no” to their kids and grandkids, nor are they comfortable setting boundaries or fair terms surrounding financial requests. There’s little proactive discussion about expectations and relative inattention to the development of both character and capacity among family members as they traverse these interdependencies. 

Navigating these choppy waters proactively requires a framework predicated on the premise that funds should enhance, not diminish, individual human potential and the health of human systems.

Balance High Expectations With Understanding.

Distribution decisions made under the influence of anxiety tend to feed mutual dependency in both the giver and the recipient. This blurring of healthy boundaries often limits the recipients by perpetuating patterns of immaturity. More often, reactive gifting is done to soothe and smooth the anxieties of the giver and the recipient. Outright gifts designed to alleviate mere discomfort are rarely healthy. When the giver is in charge of their emotional responses around the distributions, those distributions are cleaner and more likely to be effective.

The Alchemy of Investments

“Investing” in family, as opposed to simple gifting or other transfers can be powerful tools for establishing such agency. Here, the individual distributing the funds is expecting an intangible “return” on the investment. Usually, this return is reflected in the personal growth and development of the recipient. The terms are based on a mutually negotiated agreement. Often, it’s wise to consider whether a present should be re-cast as an investment.  

It’s important that terms of the agreement (the quid pro quo) aren’t dictated by the gift giver, but fully and mutually negotiated. When the recipient is involved in creating commitments, they’ll have greater buy-in and will learn more from the experience. For example, one couple decided that there were two ways to give a car to their teenager. One was to simply hand over the keys with some sound advice (aka a “present”). The other was to require their daughter to propose a series of commitments—such as maintaining the car and keeping insurance in force, which became the basis of the negotiated agreement.

For agreements to work, a recipient’s failure to live up to the commitments must have real consequences. The goal is for the recipient to grow and learn, which requires some struggle, but not be overly burdened by restrictive agreements. It’s important that both parties be held accountable to commitments made. Often, the most effective agreements have graduated consequences to ensure that slips aren’t catastrophic, yet are still impactful enough to motivate promise keeping. These factors are best balanced by intentional design to support the likely success of the recipient. When done properly, investments become opportunities for ongoing learning conversations that deepen the understanding of both the giver and the recipient. 

One powerful way to use investments is to establish a financial and wealth skills trust. This type of trust requires that the beneficiary work with a financial advisor and professional trustee to learn the financial and wealth stewardship skills that will ultimately be required of them as heirs. If the children don’t take up the challenge, the funds can still be administered by trustees in the traditional manner—and the children will have less control over both investments and distributions.

Effective decisionmaking regarding family finances requires skill. Like any skill, it requires practice. By taking a deliberate approach to analyzing family financial events, family members can improve their skills and understanding. In turn, they can increase the probability that their financial resources will enhance, not diminish, the human potential of other family members and the culture of the family system.


This is an adapted and abbreviated version of the authors’ original article in the December issue of Trusts & Estates.

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