The Moneyist: My stepdaughter blew through an inheritance and was mysteriously fired from her job — what should we do with our $1.6M estate?

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Dear Moneyist,

My 84-year-old wife and I are trying to deal with how we revise our wills. Meanwhile, my wife’s daughter was kicked out of her apartment and fired two weeks later from her position at a multi-doctor clinic after 19 years. We have not been able to determine the reasons for her firing other than what she has told us.

We initially provided some financial help for her car and insurance, etc. We’ve suspected she’s been living hand-to-mouth, but didn’t have any proof. After pulling her credit report, we discovered a long history of failure to deal with her obligations and debts, and confirmation of her fiscal irresponsibility.

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Given our knowledge of her current financial needs, and a 30-day record of cash inflow and expenditures, we’re unable to account for approximately $1,400 to $1,600, some of which would have been spent on food. We suspect she is using drugs, but have no proof aside from these discrepancies.

We know she has been never been able to manage her money. When her father died, she blew through the inheritance in less than six weeks, with only electronics to show for it. With a combined estate of $1.4 million, we’re stymied in trying to determine a course of action.

How do we provide something to keep her out of homeless shelters without having it thrown away for drugs?

Concerned Stepfather

Dear Stepfather,

Assuming she has a history of substance abuse and the fact that you are supporting her financially, the best way to find out about the missing money is to ask her yourself. You, more than anyone, are probably aware that you may not get a satisfactory answer, but you may learn all you need to know from that conversation. Under the circumstances, it is not unreasonable for you to require her to show more fiscal responsibility.

We all know that past behavior is the best predictor of future behavior, but even if your stepdaughter remains sober and/or gets sober, and stays that way, inheriting $1.6 million would be a huge burden for a person who has had difficulty managing her finances and her life. Stagger any payments. You need to figure out what you want to leave behind, and give yourself and your wife peace of mind that she will be taken care of after you’ve gone.

You are far from alone. I have received many letters from people over the years about family members who have a variety of behavioral or substance-abuse problems, including the man who assaulted his mother while living in his grandmother’s home and this mother-in-law who secretly charged $50,000 on six credit cards in her son’s name. Ultimately, you need to protect your daughter from her disease of addiction and help provide her with a life that she can realistically manage after you’re gone.

Also see: This elderly man is moving into a condo with his younger girlfriend — his daughter fears they will spend her inheritance

One option: an irrevocable trust that specific language that addresses income and principal distributions. It should also name a trustee other than your stepdaughter or other relatives/friends. Preferably name an independent corporate trustee. You could set up an education trust fund or some other funds that could motivate your stepdaughter and help her achieve her goals.

Lommen Abdo, a law firm that represent clients throughout Minnesota and Wisconsin, has advice for parents in your situation: “A portion of the trust could distribute upon the receipt of a diploma for higher education, upon establishing a reliable record of continuous employment, upon the completion of drug or alcohol treatment, or consecutive clean results to random drug tests.”

The firm suggests strict guidelines for people in your stepdaughter’s position. “For children with more severe addiction problems, it may be advisable to establish a wholly discretionary trust, whereby the trustee maintains sole discretion over distributions of trust income and principal,” it adds. “The appointed trustee will effectively assume the role of financial gate keeper for the child, with full authority to determine how much or how little shall be distributed for the child’s welfare.”

After you have addressed this, keep all parties involved and, perhaps, think about other ways you could posthumously put a percentage of your estate to good work.

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Hello there, MarketWatchers. Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas: inheritance, wills, divorce, tipping, gifting. I often talk to lawyers, accountants, financial advisers and other experts, in addition to offering my own thoughts. I receive more letters than I could ever answer, so I’ll be bringing all of that guidance — including some you might not see in these columns — to this group. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

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