As “baby boomers” age into retirement and a lot of trusts set up by the grandparents years ago begin distributing funds to the grandkids (typically by ages 25-35), many of our clients are wondering how to counsel their adult children on using this windfall.
- Start financial education early. If you know your young child will receive an inheritance when they grow up, the time to start is now. We have counseled thousands of families over the years, and one thing we can say with absolute certainty is that most adults don’t change habits. So if you want to influence your children to be “savers,” you have to start the lessons very early in life. Trying to implement new moral standards on a 25-year-old is virtually impossible, from experience.
- Support the creation of a financial plan and a budget. People gravitate away from pain and seek pleasure. Not a big surprise. So if you want your children to do the “right” thing when inheriting money, you often need to help them understand the consequences of decisions and the future pain they may avoid at the cost of immediate pleasure. That means helping them with a financial plan and creating a budget. Mission Wealth offers educational services to the children of clients, in addition to hosting intergenerational family meetings, which may be helpful in passing on financial values and discipline to your children.
- Do not let them overextend themselves. When people don’t earn the money they receive, they can have a tendency to create a lifestyle that is not sustainable. Money “in” becomes money “out.” You’ve likely read some of stories of lottery winners going bankrupt a few years out from hitting it big. Helping the child set up a fixed amount as a monthly income (or “allowance”) from the funds could provide enough for the child to avoid invading the principal.
- Evaluate and then potentially reassess future plans. When a child receives money while a parent is alive, it offers a tremendous opportunity. If the child is responsible, then it helps validate the future estate plans of the parents. If the child is reckless with the money and acts in ways not to the liking of the parents, it allows them to alter their plans such as by changing distribution schedules or – in extreme cases – by disinheriting them (i.e., by giving money to charities or extended family members).
Whether your goal is to leave your estate to heirs or charity, to minimize taxes or to maximize lifetime giving, we are here to provide clarity and direction. At Mission Wealth, we have the knowledge to guide you through all phases of your estate plan to ensure that your wealth is directed as you intend.
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Mission Wealth is a Registered Investment Adviser. This commentary reflects the personal opinions, viewpoints, and analyses of the Mission Wealth employees providing such comments. It should not be regarded as a description of advisory services provided by Mission Wealth or performance returns of any Mission Wealth client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Mission Wealth manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
