Parents who plan to leave a legacy for their children often want reassurance that the gift will be distributed appropriately and well received. When a child is young, irresponsible or unpredictable, parents can understandably feel nervous about how that child might react to receiving a sizable inheritance.
To ease parental worries and help a child better appreciate this type of gift, parents can take the following steps to help prepare a child for the inheritance they will receive.
Be direct and honest
We hear stories about how wonderful it is for a person to receive a surprising windfall of money after someone passes away. However, surprises are not always pleasant.
Thus, being open and honest with your child (at an age-appropriate level) can help them appreciate what the future holds. You may not want to divulge every detail of your estate plan, but talking to them – even in broad strokes – gives you the chance to address any concerns or questions they might have.
Educate and equip them
Not everyone possesses the skills and wherewithal to manage a large inheritance. To help get your child in a position of receiving and using the gift as you would hope, start by getting them a financial education. Have them manage their own money or sign them up for a class to learn about finances. Encourage them to participate in a family business and other ventures you support.
You can also share your insights and beliefs when it comes to managing money. You might talk about your values, the effort it took to build your wealth or what it means to have a comfortable lifestyle. This background can help guide them in their own financial decisions.
Plan accordingly
You ultimately have a great deal of control when it comes to leaving an inheritance. You can set up and fund specific trusts, structure payments to benefit charitable organizations and attach certain conditions to your gifts to prevent a child from blowing through it.
No matter what your plans are for leaving an inheritance, you would be wise to create a comprehensive estate plan that preserves your wishes and sets the rules.
Leaving a gift for your children should be a benevolent act. And with the right preparation, it can be just that.