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When are Kids Old Enough to Handle an Inheritance?
You’ve worked tirelessly for decades, building a comfortable life for yourself and your family. You’ve made sacrifices, lived within your means, and saved wisely. And now, you’re faced with the reality that your nest egg will eventually become your children’s windfall.
How will they handle it?
No one knows your children as well as you do. If your children lack the financial maturity to handle an inheritance, you can probably sense it, in your brain or in your gut. That’s okay. Financial responsibility is as much a skill as a character trait. It develops over time. Some heirs are ready, while others are not.
Perhaps your children are great with money. You may have no concerns about their maturity or responsibility. Unfortunately, there are other risks to an inheritance. Lawsuits, accidents, divorces, and the spending habits of current or future spouses, could all impact the estate that you leave to your heirs. Age isn’t the only factor.
Thankfully, thoughtful estate planning techniques can alleviate much of this risk and uncertainty. For example, an inheritance could be retained within a trust and used for any needs that your children may encounter, such as paying for college or making a down-payment on a home. So long as there is an independent trustee managing the bulk of the inheritance, it would be protected from intentional misuse or freak accidents.
Retaining an inheritance in trust begs the question: How long should the trust last? Many attorneys take a cookie-cutter approach to this question. “Give it to them when they’re 30 (or 35, or 40).” While it would be simpler if the answer to this question were black and white, the truth is there is no magic number that determines your child’s readiness to take the reins. Every family is different, and no one knows what the future holds.
So where does that leave us?
Some clients have strong preexisting convictions regarding the management of their estate. In those cases, of course we would carry out their wishes. Other clients come in undecided. For those clients, I recommend a “hope for the best, plan for the worst” approach.
This approach provides that the inheritance be retained in trust without a specified payout date or age. If the trustee decides that the trust is no longer necessary, then they can distribute the inheritance to the child. Otherwise, the trust protection remains. Since you have the ability to select the trustee, and communicate your intent and inclinations, you eliminate most of the risk that your wishes won’t be carried out. At the same time, the trustee has the flexibility to respond to changing circumstances.
Rather than suggest a specific age, I urge you to have an open discussion with your attorney regarding your children’s life stages and readiness, as well as your own desires as to how your wealth should benefit future generations. Ultimately, it is impossible to protect your children from every peril. It is possible, however, to protect their inheritance to the best of your ability through thoughtful estate planning.