There are a few different options to help prepare your children or other beneficiaries for the future inheritance they will receive. Here are some strategies recommended by financial advisors:
1. Get over the money taboo – Many parents are very private and don't like the idea of discussing money with their children. They worry that their children will feel privileged or spoiled, knowing that someday they will be the heir of a large sum of money. However, the problem with not discussing these topics arises when the children come into this money by surprise, such as after the parents die in an accident or when they suddenly have access to a trust fund once they reach a certain age. They need to be prepared for the money they will someday have and be educated about managing it once it's theirs.
2. Embark on a mission –Write all of your core values down on a paper and display it in your home office where it is visible as a daily reminder to everyone. Then, come up with a mission statement that defines the long-term purpose of your family's wealth.
3. Raise money smart kids – Being financially savvy is not a trait that comes easily to everyone. It is important to teach your kids from a young age the value of saving money and budgeting. This can start with getting your child a piggy bank when they are little. Older kids can be taught how to budget and save money by receiving an allowance and learning how to spend their allowance to pay monthly expenses such as their cell phone bill or car insurance. If they don’t use their allowance to cover these expenses, consequently those things may be taken away from them.
4. Provide financial training wheels – One way to do this is by seeding an investment account for your children when they are in their late teens. You can then allow your child to make investment decisions and agree to match a percentage of the returns earned over a specific time period. These types of accounts will allow the child to withdraw money and will not allow the parent to add to the principal. The purpose of this account is to teach the child about investing and spending. Make sure that they don't just withdraw the entire account within the first few months to take an expensive vacation or buy a fancy car. If they are not proven to be financially responsible with this account, it may be time to re-evaluate your estate plan to protect their future inheritance.
5. Assemble a good team – It is essential to have an excellent professional team surrounding you to help with all financial and legal concerns. Make sure that you have hired a good financial advisor, accountant, and estate planning attorney. These people will be able to address any concerns you have around your child's inheritance and your estate plan. They can hopefully provide an outsider's perspective on issues that you may not have though of otherwise.