My dad did not plan on dying at age 47. Like most fathers, he planned to watch me grow up, get married and have children. However, he passed away when I was 23 and my brother was 19, and we found ourselves with a small inheritance, insurance money and a New York City apartment. We sold the apartment and cashed the checks. We invested some money wisely, some not so wisely, and spent a decent amount of it becoming very popular on campus.
To be honest, I was a college kid who did not know what I was doing. My father had not really spoken to me about money and I did not have a relationship with a financial institution. In retrospect, while I learned many valuable lessons, I would have been better off with additional guidance.
As you review your financial plan, you should consider what will happen if you pass away prematurely. Where will your money and assets go? Will those who receive them be ready for the responsibility? We sometimes assume that once our kids turn 18 they magically become adults and no longer need guidance. While many children do mature, college-age children have many competing priorities and temptations that can make them ill-prepared to handle a significant influx of money.
In addition to being prepared financially through saving and by purchasing adequate life insurance, here are three things you can do to help your children navigate their financial future:
1. Talk to your children
While this may seem obvious, we sometimes avoid difficult discussions about death and money. You should discuss finances with children once they reach an appropriate age. Tell them your expectations and let them know where they should go to seek guidance if you are no longer available. If something does happen, these words can have a tremendous impact after you are gone.
See the related article “Financial Conversations with Family”
2. Consider putting assets in a trust
If you are fortunate enough to have assets to pass to your children, you can put them into a trust through your estate plan. You can also have any life insurance proceeds placed into a trust. This allows you to set parameters on how and when the money is withdrawn, including for what purposes the money can be used.
3. Select a trustee wisely
Every trust has at least one trustee who is responsible for ensuring the trust is applied according to its terms and for the benefit of the trust’s beneficiaries. Make sure your trustee clearly understands your desires regarding how you would like your affairs handled, especially as it relates to your children’s finances. When choosing a trustee, you should select someone who is financially savvy and understands your family’s needs and personalities. Just because someone is related to you does not mean he or she is the best person for this role.
If you select an appropriately-skilled individual or corporate trustee, you can help ensure your heirs will have someone to talk to about their finances and to help guide them as they make decisions. In my situation, I would have greatly benefited from having a trustee with whom I could discuss my finances.
At Fiduciary Trust we have over 100 years of experience helping families plan for generational wealth transfers and ensuring a support structure is in place in the event that a transfer happens sooner than planned. In addition to the steps mentioned above, there are a number of other important planning considerations you should consider. Please contact us if you would like to learn more about how we can help your family.
The opinions expressed in this article are as of the date issued and subject to change at any time. Nothing contained herein is intended to constitute investment, legal, tax or accounting advice, and clients should discuss any proposed arrangement or transaction with their investment, legal or tax advisers.