“Leave the children enough so that they can do anything, but not enough that they can do nothing.”
As parents, we all want what is best for our kids; that’s universal. Motivated by a deep desire to see that our next generations are provided for, we work hard to give them the very best—a top-notch education, a comfortable home, nourishing food, and perhaps most prominently, financial stability.
A particularly useful tool for transferring wealth is a trust fund, which, if created and implemented correctly, can be the perfect vehicle to set your children up for long-term financial success. Our view is that trust fund kids often get a bad rap, and the term alone likely conjures images of designer-clad young people jet setting around the world on private planes. But the truth is, not all trust fund beneficiaries come from ultra-wealthy families. Furthermore, just because someone does have a trust fund does not necessarily mean they have the power or resources to sit back, spend their parents’ money, and do nothing. Parents set up trust funds for their children for a host of reasons—establishing a line of income, putting away money for education, or ensuring that their children will be financially taken care of in case of emergency, to name a few. However, there are several common pitfalls and mistakes you can run into when designing a trust. Here are some things to keep in mind as you set forth to help your children become financially secure, sans the notorious silver spoon.
Be clear about the goals for the trust
Before you begin to design your trust, it’s crucial to understand precisely what you’re trying to accomplish. Is it intended to give your children a financial head start, or do you want to stagger their allowances and provide them with an income stream for life? At what age will they be eligible to receive the proceeds? Are there qualifications you want them to demonstrate—such as starting their own business or reaching a certain amount of income on their own—before receiving the assets? One of the greatest things about trusts is that they don’t have to be all or nothing. Assets can be turned over at different ages or life accomplishments and used to foster financial education so that by the time the trustee receives the bulk of the assets, they’ll have some experience with inherited wealth.
Communicate with the beneficiaries
A lack of communication is one of the biggest pitfalls when it comes to family wealth and trust funds in particular. We know that money is a taboo topic in many households, but when open communication can be established you’re able to better understand the intent behind the money, as well as the long term desires of the beneficiaries. The way you talk about money with your children sets the stage for the way they will think about money for the rest of their lives. Keep the dialogue about your trust and any accompanying expectations or conditions straight forward and honest. Talking things through with your heirs should help them understand the depth of your regard for them, in addition to your concern for their future well-being. The more they know and understand, the better the chance that your estate planning will achieve the goals you have set.
Don’t underestimate the power of financial education
Instilling financial skills in children from a young age can help establish a healthy financial foundation. Sneak interactive financial education into the day-to-day lives of your children. Simple acts like having them select the bills and coins to pay your local barista are a great start. As your children grow up, continue teaching them the value of money. Show them how to budget by giving them a weekly allowance. Teach them to earn by paying them for completing household chores. Accompany them to the bank and show them how to open a savings account. If your child has a paying job, incentivize them putting money away for retirement by offering to match their contribution. Take it one step further. Bring your children into conversations with financial professionals and show them firsthand the inner-workings and complexities of the family wealth. Even if they are simply observing, sharing this behind-the-scenes aspect can be a lifelong lesson.
Inherited wealth is very different from earned wealth, and it may take time and training to help your children view it in the right light. Volunteering is another excellent way to prepare your children for the legacy they’ll receive. Share the causes that are important to you and involve them in your philanthropic activities to demonstrate that wealth can empower and have great impact.
Prepare with the Treehouse Wealth Advisors Team
As mentioned previously, trusts are not (and shouldn’t be) exclusively for the ultra-wealthy. Trusts are a tool that you, as a family steward of any income level, can utilize to accomplish a variety of estate planning goals, while ensuring that your loved ones have an extra layer of security on your terms. Furthermore, trusts are financially advantageous and often provide tax benefits, making them a win-win.
A trust is not a “one size fits all” document and building a trust that creates opportunity without removing choice or purpose for your loved ones is no simple task. A financial advisor can be a great resource in helping you pinpoint the right approach for you and your family. Are you ready to start the estate planning process? Reach out to the Treehouse Wealth Advisors team. We’ll partner with you and your estate planning attorneys to help protect the wealth you’ve built for generations to come.
Garrison Point Advisors, LLC doing business as “Treehouse Wealth Advisors” (“TWA”) is an investment advisor in Walnut Creek, CA registered with the Securities and Exchange Commission (“SEC”). Registration of an investment advisor does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. TWA only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of TWA’s current written disclosure brochures, Form ADV Part 1 and Part 2A, filed with the SEC which discusses among other things, TWA’s business practices, services, and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov.
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