Most parents have certain reservations when it comes to leaving money to their children. How much is enough to leave your children? How can you ensure your child will make good decisions with the inheritance?

These questions are especially top of mind when considering the age range from birth to 18. Taking care of your children when you’re gone is top of mind for any parent, but even more so during the stage when your children are most dependent on you for life’s essentials. 

Here are some steps you can take to ensure any wealth you leave behind for your young children protects their needs without causing them to lose their drive and ambition. 

Give Them a Financial Test

Curious how your child will manage a large inheritance? Why not offer a trial run. Gift your children smaller sums of money, without placing any restrictions on how they spend it. Do they put it into a savings account? Do they use it to cover necessary expenses? Or do they blow it all in one day?

Take advantage of this opportunity as a chance to teach your young children about the value of a dollar. Help them understand why compound interest is considered the eighth wonder of the world. Explain to them the cost of education today, and how they can get a head start. Encourage them to ask for help if and when needed.

Tie Distribution to Age or Events

What were you spending your money on when you were a teenager? Most adolescents do not have the emotional and intellectual maturity to handle a large inheritance at this age.

If something were to happen to you during this time period, you would want to set aside enough money to cover basic needs for your children. Any additional money can be arranged over a set period of time. For example, you could offer one installment at age 16 to help pay for your child’s first car, and another payment could be made contingent on your child registering for college.

Consider Leaving Money in a Trust

One way to ensure your child has some support to help them make good decisions about how they spend their inherited money is by leaving money in a trust, and appointing a trustee who will provide guidance and make decisions about how your child will spend their wealth. Choosing a qualified individual trustee can be difficult. This is a big responsibility to place upon a friend or relative, and it may be an uncomfortable role for them to play in your child's life. In many situations, it may be more appropriate to consider a corporate trustee to disburse funds upon attainment of a first job or a bachelor’s degree. 

Provide a Trickle, Rather Than a Lump Sum

At the end of the day, you want your inheritance to be used as a tool to enrich the lives of your children. Sudden wealth can be dangerous for anyone, but especially those under the age of 18. 

If distributed wisely, in small portions over time, an inheritance can offer security and a head start on life. One common strategy is to allocate income and principal from the trust assets when your children are young only for specific purposes (medical and education expenses) and then, to disperse the remaining principal outright, when they are older (and, hopefully, financially wiser).

As a parent, you want to ensure your children are protected from the many uncertainties in life. By planning ahead and referring to the strategies above, you’ll feel confident that your wealth is protecting your children while allowing them to create meaningful lives for themselves.

About Caldwell Trust Company

Caldwell Trust Company is an independent trust company with offices in Venice and Sarasota, Florida. Established in 1993, the firm currently manages over $800 million in assets for clients throughout the United States. The company offers a full range of fiduciary services to individuals, including services as trustee, custodian, investment adviser, financial manager and personal representative. Additionally, Caldwell manages 401(k) and 403(b) qualified retirement plans for employers.