Many wealthy individuals face the dilemma of how to best prepare their children or grandchildren for their future inheritance. While they love and trust their children, they have worked hard to create their wealth and want to take extra precautions to ensure their money is not lost or squandered after their passing.
While there are a number of estate planning tools that parents and grandparents can utilize to ensure their wealth is passed down with protection and care, it’s also wise to start early and teach children age-appropriate lessons to help them value and appreciate the money they will receive during adulthood.
Here are just a few simple, yet great strategies to help your child exercise financial responsibility at any age:
Age 5-8: Give your child a small weekly allowance (not more than $5 in dollar bills). Let him or her know that the money can be spent right away, or that it can be saved for a more expensive item, like a skateboard. Give them plenty of opportunities to use their own money to pay for what they want.
Age 10-12: Invite your child to attend regular family meetings and discuss what they believe the purpose of money is. Reassure your child that his or her opinion matters and ask for your child’s input on things like investments, donating money to the poor and spending on necessities vs. luxury items.
Age 12-14: Establish a checking account for your child and help him or her learn to balance it. Begin to explain to your child that your family came into money because of hard work and there is a responsible way to manage money. Set expectations with your child that he or she will be expected to manage and invest their own money someday.
Ages 14-16: Invite your financial advisor or banker to a family meeting or invite your child to your meeting with your advisor. Sometimes hearing advice from an outside party will be better received than hearing it from you. If you wish, you can have that person discuss how much money you plan to leave your children or other sensitive subjects.
Age 17-20: If the message doesn’t seem to be sinking in, begin taking steps to take care of your beneficiary by shifting assets so that you are in control. For example, develop a family limited partnership or talk to your attorney about setting up a trust in order to protect your family’s wealth if the unthinkable happens.
Age 20-25: If you have a family business, let your children know they are welcome into the business when they are ready. Whether it’s graduating college and/or working in another company to gain experience and perspective, let them know your expectations.
Finally, don’t forget to tell your children that you are teaching them financial responsibility because you love them and want what’s best for them. Let them know that you would like your family’s wealth to last for generations and that they must take money management seriously to ensure that happens.
I’m happy to talk with you as you begin this process of safeguarding your inheritance and teaching the value of money to your kids. Please feel free to call our Newport Beach Trusts and Estates law firm at (949) 260-1400 if we can be of any assistance to you.