Managing Trust Fund Kids...Kids Laughing
By Clay Zachry, CFP®
Personal Wealth Advisor

Concern about passing on a legacy is universal, and a trust fund can be a useful tool in helping you transfer your wealth in the manner and spirit you desire. Many parents worry about leaving too much or too little for loved ones, and they’re not alone. There are countless stories of fortunes made by one generation being wiped out by the next for one reason or another. However, you can avoid common pitfalls with the right resources and planning. Here are some things to keep in mind as you consider creating a trust and helping your children become financially savvy.

Building the Right Trust Fund for Your Child
The key to setting up a trust fund is flexibility and aligning it with your child’s strengths and needs. Billionaire investor Warren Buffett famously claimed that you should provide your children with “enough to do anything, but not enough to do nothing.” That sage advice speaks to the importance of finding the right balance and structure for the trust itself. There are different types of trust funds and the rules of management can vary from family to family. Building a trust that creates opportunity without removing choice or purpose for your loved ones is no simple matter. For example, handing over a large investment portfolio or controlling interests in your $50 million-dollar business to an 18-year-old heir may do more harm than good without proper guardrails and preparation. A financial advisor can be a great resource in helping you pinpoint the right approach for you and your family.

Financial Insight Only You Can Give
Money is a taboo subject in many households, and perhaps unsurprisingly, the majority of family fortunes are lost due to a lack of communication and trust rather than poor wealth planning.¹ After all, inherited wealth is very different than earned wealth. It may take time and training to help your children view it in the right light. Having a straightforward conversation about your estate plans and expectations now, along with ongoing financial education, can prevent your family from being blindsided in the future. For many parents, it’s less about the amount of money during these types of conversations, but rather a focus on getting the right messages across around the intent of the inheritance and sharing lessons learned while cultivating financial success.

Managing Trust Fund Kids...Parent & Child at Beach

Knowledge-Building Ideas
Like any type of educational endeavor, financial or otherwise, practice is critical to success. Instilling financial skills in children early on can help build their confidence and mastery over time. You might consider the following strategies:

    • For younger kids, sneak in financial education where you can and make it fun and interactive. Try online resources such as “The Mint” or apps like “Bankaroo” or “Savings Spree”. Focus on goal-setting, saving and spending discipline.
    • For teens, after studying the basics put their financial abilities to a test. You can consider gifting conservative amounts of money at first and if they don’t spend it all on a new bag or afternoon out, you can try providing a few larger-sized amounts to help them practice discipline and sound decision-making.
    • For adult children, you can help them build good money management skills by teaching them to balance their own checkbooks, manage credit cards and pay their own bills. If your child is working, think about matching their retirement savings to help incentivize them to plan for the long term.
    • Bringing your children into the conversation with financial professionals, including your financial advisor, CPA, and any trustee(s) that they’ll be working with, can help them build those relationships now and ease the transition in the future.
    • Volunteering is another way that you can connect with your children and prepare them for the legacy they’ll receive. Involving them in your philanthropic activities and sharing the causes you care about can show that wealth can empower and have impact. You might even encourage your kids to research and find non-profit organizations that are focused on topics they find interesting.

For More Ideas, Connect with Us
We hope you found the ideas above helpful. Trust funds are useful estate planning tools, but there isn’t a rule of thumb that works for everyone. Preparing your children and helping them feel confident about handling their inherited wealth will require education and the right tools to do so. Please reach out to us if you’d like to discuss your particular situation or are seeking more in-depth estate planning strategies.

 

Source:
1. BNY Mellon. The Parent Trap: Avoiding Common Multigenerational Wealth Planning Pitfalls. May 24, 2018. https://www.pershing.com/perspectives/the-parent-trap