Having end-of-life discussions are always difficult; when children are involved, the topic becomes a whole different ballgame. No matter the age of your child – be they 10 or 40 – there may be a time when you need to let them know your final wishes. This is particularly the case with regards to inheritance. But when is the right time to talk about your child’s trust fund? How do you ensure they practice sound financial advice?
Discussing finances with your son or daughter is something most parents try to avoid. Most children probably go there entire life without knowing their parental units monetary value. Time and again, the would-be inheritors do not know what they will, in fact, inherit until the reading of the last will.
There can be many reasons for this. For starters, often the decision on how to split an estate or set-up a child’s trust fund is determined by tax laws; maximizing tax benefits is a sound strategy most estate lawyers employ when setting up bequests. Another reason children get left out of the estate planning process is that parents do not want their young ones to feel “entitled”; no one intends to raise a trust fund baby after all. And of course, as is the case with a young child, they may simply not be able to understand the implications of inheriting a large sum of money.
Whatever the reason, most parents have a difficult time deciding whether or not to let their children know about their inheritance.
Your Child’s Trust Fund: When Should They Know?
Unfortunately for parents, there is no standard “best time” to discuss your child’s trust fund with them. Each child’s ability to comprehend financial matters is different; so too, is their maturity level. The best rule is to start them off slow. Let them know the bare minimum: that you will be leaving some things for them when you pass away. This could be money to pay for college or a new car – no need to get into specifics until they can grasp the implications.
When you feel your child is ready, you can give them more details about their trust fund. You can tell them an exact amount if you wish or simply lay out the structure of your child’s trust fund. Will they be able to fully access the fund, or will they receive payments for set periods of time? Who will be the designated trustee? Will there be a trust at all, or will they just inherit a lump sum of money?
Teaching Children Financial Responsibility
Informing your son or daughter about your estate intentions is only part of the conversation you will need to have regarding your child’s trust fund or inheritance. Teaching them fiscal responsibility and the value of a dollar is equally – if not more – important. After all, what good is leaving them money if they waste it on trivial things?
Even if you are not leaving your child money, teaching them financial lessons such as the importance of saving and “earning their keep” is something every parent should prioritize. Start with a weekly allowance that is earned through household chores. Take your kid to the bank and have them start a savings account. Then, once they make their weekly allowance, encourage them to save at least ten percent.
Does your child want an expensive item? Maybe they have been dreaming of a new video game console or a drone. Having them save up to purchase “big ticket” items is an excellent way to teach them the value of saving. Even better, if your child wants a new mobile device, have them pay the monthly bill. This is an excellent lesson in budgeting and making bill payments.
One thing parents often overlook when teaching their children about finances is the importance of charitable giving. Let your child research a charity that interests them and then donate a small portion to the organization. You will help them discover the joy of giving back to the less fortunate and show them the value of non-material objects.
Other Financial Education Tips for Children
Finally, while saving and budgeting are great money lessons for children, there is one final arena you should not neglect: sound investing. If you leave your child money or a trust, they will do well to learn how to properly invest those funds. Start off having them research stocks and creating virtual portfolios. Let them track the progress of their “picks” and see how much money they earn. Don’t be afraid to let them choose losers – losing a lot of money is just another way for them to appreciate every dollar they earn!
If they decide they want to be more adventurous and risk their money, let them invest some of their savings. These early money lessons will stick with them their entire life and help secure their financial futures.
Have a question about your child’s trust or a revocable trust?
Looking for more tips on how to educate your children about finances? Check out the Federal Deposit Insurance Corporation’s (FDIC) Money Smart for Young People curriculum.