‘We live in purgatory’: My wife has a multimillion-dollar trust fund, but my mother-in-law controls it. We earn $400,000 and spend beyond our means. What’s our next move?

I’ve been with my wife for 15 years. We’re in our 40s, have two children and are very happy. We both have good jobs and make about $400,000 a year combined. My wife’s grandfather made a decent-sized fortune for himself and left his kids a thriving business and sizable trust funds.

The trusts and other investments are controlled by my mother-in-law, even though they are meant for my wife. As we don’t have access to them or specific knowledge about them, I have always preached and practiced that we need to budget and live within our means — meaning our direct income, savings, etc.

However, with the knowledge that there is this money and with feedback from my wife’s family always being along the lines of “don’t worry about the money” or “it will be fine,” we have spent beyond what I would otherwise say is smart.

“‘Life in New York is not cheap, and with two kids, we are now getting to the point where there is no more meat left on the bone. We are in the red at the end of the year.’”

Life in New York is not cheap, and with two kids, we are now getting to the point where there is no more meat left on the bone. We are in the red at the end of the year. I worry about how much we are spending on dining out and groceries, while at the same time discussing a near $1 million renovation of our apartment. That money would have to come from our mother-in-law.

We monitor our credit-card spending, and we stress out as we come to the end of each cycle. At the same time, we are also being cc’d on messages from her family about investment opportunities. It’s not lost on us that we are lucky, and that this is not a scenario where her mother is blowing through her money.

My mother-in-law is generous and feels like she is protecting my wife and her family. That said, she is not necessarily the most financially savvy, and any conversation my wife tries to have with her is met with instant and irrational resistance.

“‘My mother-in-law is generous and feels like she is protecting my wife and her family. That said, she is not necessarily the most financially savvy.’”

If our reality is that we need to live and plan like a family of four making what we make, I am fine with that, but significant changes have to be made. If our reality is that we are blessed with some wealth and have flexibility both in how we spend now and how we plan, then of course that is great. But we’re living in purgatory, and that is stressful and hard to manage.

I can’t write a check to our credit-card company that says, “Don’t worry, my wife’s family says it will be fine.” No one is looking to take bags of money and run to Vegas, but it’s hard to live in two different realities.

I get along well with my mother-in-law and the rest of my wife’s family. We are very close and I don’t want to risk that, but how do we get our message across and navigate this situation?

Waiting for the Big Day

Dear Waiting,

If your mother-in-law is taking her sweet time before dishing out a dollop of cash to her family, she sounds pretty savvy to me.

You’re not living in purgatory; you’re living in fantasyland. You’re seeking out short-term thrills over long-term goals. It’s folly to spend like you have millions of dollars in the bank when the fact is that your wife has millions of dollars sitting in a trust fund that may or may not be released to her within the next 10 or 20 years. Your wife’s mother, let’s hope, leads a long and healthy life, and she could insist on pulling those purse strings long into her 90s.

If your mother-in-law is the executor of the trust and has been charged with managing the estate according to the terms of the trust or her own wishes, it may be a long time before your wife sees any of that family money. With a sizable inheritance comes great responsibility and, oftentimes, greater egos. Don’t fall into the trap of spending money like you have special dispensation to run up bills regardless of the consequences.

First of all, you will make yourself dependent on your mother-in-law’s largesse if you end up struggling to pay back loans, especially now that interest rates are rising and look like they’re not going to do a U-turn anytime soon. She may not look kindly on you spending money with the expectation that she will distribute funds from the family trust. Doing so may even persuade her that you and your wife are not in a position to manage a large sum of money.

Second, it’s good practice to live within your means, and it also provides a good example for your children. They may or may not have to worry about money when they get older. This is a good window of opportunity for you to teach them about the value of money, how to budget and live within their means — before the family trust is eventually distributed and they come to believe they are financially secure for the rest of their lives.

“‘She may not look kindly on you spending money with the expectation that she will distribute funds from the family trust. Doing so may even persuade her that you and your wife are not in a position to manage a large sum of money.’”

This is not a unique dilemma — or rather, privilege. Roughly $70 trillion will be transferred to younger generations over the next 25 years, according to a recent report from Cerulli Associates, a research and consulting firm specializing in asset-management and -distribution trends. Chayce Horton, an analyst at Cerulli, refers — somewhat gauchely, perhaps — to the recipients of such windfalls as “winners of wallet share.” It’s better than lucky muckers, I guess.

Still, Horton also wrote, “Extending interfamily relationships to involve the entire range of stakeholders rather than just the current controllers of that wealth will create a greater sense of responsibility and inclusion among heirs that will help in the likely case that more complex discussions about management of the family’s wealth occur in the future.” If your mother-in-law is dangling a carrot, you can teach your children the value of carrots.

Another caveat: Any money your wife receives will legally belong to her under New York law. Inheritance is regarded as separate — not as community property. Let’s say she receives $10 million at some point in the future. If the state of your marriage were to change, or she changes or you change, you would not be entitled to any of it under the law. That inherited money is your wife’s to keep. Whether you stay together forever or split up, it’s technically not your money.

New York is an expensive city to live in, but you earn roughly four times the median household income, so you’re already ahead. I understand that it feels exciting to spend money and live large and to have the sense that you are blessed by the money gods. But if you are already in the red, it’s a bad omen of things to come. I refer you to the cautionary tale of the wife and the woodcutter and their three wishes.

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on Twitter.

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