Back to the “marriage” thing, for example, your kid could get married and then “take a withdrawal” out of $10K of their IRA funds for a downpayment on their first home (that you invested for them when they were a minor).
Then take title to that home in “joint tenancy” with their spouse and subsequently get divorced and lose 1/2 their “equity” (assuming there is any equity left to split at that time).
I guess this is the same as gifting your married child $10K (or more) to help with a downpayment on their home and they they subsequently lose it in SS, FC or a forced “divorce sale.”
I’ve just seen a lot of stuff like this this in my day and its not pretty. Not related to IRA’s, the worst things I’ve seen happen were to heirs of free and clear CA homes (with extremely low taxes) who got married and then later had to use their spouse’s income to take out a mortgage on their inherited home which was large enough to improve the home (or invest in spouse’s business, their kids’ college or for a variety of reasons). The mortgage application triggered their lender to require a “quitclaim deed” be executed from the heir-spouse to both spouses as a condition of granting the mortgage, due to the “heir-spouse” having little or no income of their own to qualify for it by themselves and so the heir-spouse cooperates and executes the quit-claim.
Later, the couple gets divorced and the “heir spouse” is unable to buy their spouse out of the property. They end up recovering very little equity from the forced sale of their former parent(s) home because it is now mortgaged (in some cases repeatedly) and half of it now belongs to their spouse, who lived with them in the home while married and also signed the note(s) on the mortgage(s) they took out together. Of course, the heir spouse’s ultra-low assessment is also lost upon sale.
Even though unemployed/underemployed at the time of marriage, the “heir spouse” in many cases would have been far better off to work at least part-time during the marriage and pay ALL the bills related to their “inherited” property (taxes and insurance but not necessarily utilities) and pay for any repairs that it needed out of pocket. They should have never involved their spouse whatsoever in the direct expenses of the home. Instead, they essentially (unwisely) commingled the equity from their inherited homes to receive large amounts of cash from them.
I’m still in touch with most of these people from time to time (all but one were females) and two are them are now 60-65 years old and virtually “homeless” (renting rooms in other’s homes).
That wasn’t what their parent(s) intended in leaving their child(ren) their home.
I think I posted somewhere here a while back that none of us has any idea WHO our kids might marry (and are powerless to stop an adult’s marriage which we may think it wrong for them) or how that marriage will turn out.
I like the idea of leaving in trust money to (currently young) heirs in stages, such as appointing a fiduciary to pay college expenses at 18 years old, payment 2 at 22-25 years old and payment 3 (the largest payment) at 30 years old or older. Even a “staggered-payment trust” as described above can’t control everything but it can teach an immature spendthrift kid how to budget and save, since there are several years between payments and no way to obtain an “advance” in between payments.
I guess an IRA gifted to your kid from investments you made while they were a minor would work out okay IF your kid was well employed directly out of college and all their needs were taken care of. I just feel that the kid would take withdrawals (and the subsequent tax hit where applicable) IF they KNEW about the IRA and felt that they “needed” anything at all (i.e. newer vehicle, overseas trip, or help with downpayment on first home, etc). And they may not tell their parent(s) about it if they do … that is, until they have to file their tax return and are shocked as to how much they owe :-0
