When to give adult children their inheritance?

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Dazed
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When to give adult children their inheritance?

Post by Dazed »

Am currently in process of drawing up a revised living trust and am having difficulty with deciding at what age my adult children will receive their inheritance.
The difficulty for me stems from the fact that they will each potentially be inheriting a very large sum of money, the kind of money where, if they manage it well,
they may never need to work again. Would love to hear from others who are in a similar situation (or not) and how they have elected to handle it in their trust.

Some background on the "kids":
One will be graduating university in June, has job lined up after college.
Other, two years post-university, is working at start-up company.
Both have proven to be motivated, live within their means, and are fiscally responsible (I think the whole "poor college student" lifestyle really helped them in this regard.
They know how to live on the cheap, if necessary.)

In sum, they are grounded individuals whom I trust will make grounded decisions along the way. However, they are still young (in their early 20's) and it just makes me uncomfortable putting so much money in their hands at such a young age. Maybe an ambition-killer? I am currently favoring two ideas: give each half of their inheritance at age 25 and the remaining half at 35. Or the total amount at 30.
Maybe I'll get lucky and live to 90+ and this will be a moot point :) (I am in my early 60's, btw)
Am open to any and all ideas...maybe you have a better one than I do. Thanks in advance.
livesoft
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Re: When to give adult children their inheritance?

Post by livesoft »

My spouse and I have different ages in our wills. She thinks the young adults need to be older. I say let them blow it younger if they want to. So if I die first, then my spouse gets all my money and then kids get her money later. If she dies first, then I get all her money and the kids may get the money earlier.

I suggest you talk to your kids and see what they have to say. You might be surprised.
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Carefreeap
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Re: When to give adult children their inheritance?

Post by Carefreeap »

Are you talking about gifting a sum now vs when you die?

I think there's real merit in doing some prudent gifting rather than having them blow it all at once.

Do they know about your NW?

From personal experience I think DH and I were lucky that he received his inheritance at age 40. Sooner than age 35 I think it would have wound up being a part of a more consumption lifestyle. He knew he was going have an inheritance but didn't know how much. That made him make his own way including some days of eating beans and rice!

Since receiving the inheritance we've always treated it as retirement money. We've led a nice life knowing there's some money in the bank.
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sleepysurf
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Re: When to give adult children their inheritance?

Post by sleepysurf »

I recently grappled with this question when updating my Trust/Estate Plan. Rather than giving my (currently 22 y/o) daughter lump sum distributions at various ages, I earmarked an annual "stipend" of $XX,000 (with COLA adjustments) to supplement her annual income, and $10,000 more annually if she starts Grad School (in an accredited program), then an additional $10,000 annually once she graduates. That provides a stable foundation for the future, and motivates her to remain ambitious in her future career (and hopefully Grad School). It would also likely pass $$ along the her future children. The designated Trustee has discretion to release additional sums of money for health issues, purchasing a home, etc.
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TxAg
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Re: When to give adult children their inheritance?

Post by TxAg »

I'm early 30's and although I think I make prudent choices, it seems the decisions I made at 25 are not quite as good as the ones I make now. I have a wife and kiddo now so that changes things.

Some now might be fun. They could travel and enjoy life as young bachelors. The majority at early to mid 30s would be a no brainer when they're doing the family thing. Of course, then there's the prenup thing, but I never had enough to worry about that.
Last edited by TxAg on Mon Apr 06, 2015 6:37 pm, edited 2 times in total.
123
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Re: When to give adult children their inheritance?

Post by 123 »

Instead of identifying specific ages for the kids to receive their inheritance maybe a generalized formula might work better like 20% upon your passing, 40% five years after your passing, and the balance 10 years after your passing. One of my concerns would be the costs of the trust/trustee as well as the tax rates that might have to be paid by the trust. Do you anticipate the trust distributing income along the way and just holding back the principal?

Getting some money in their hands for the purposes of gaining familiarity with investing could be very valuable sooner rather then later. People just seem to learn a lot better when their own money is on the line. Perhaps it's time to show them the ropes of investing with an immediate gift to $10K (or whatever) in an individual investment account. Perhaps there's a "Family" investment style they should learn to mimic in their account.
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dgdevil
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Re: When to give adult children their inheritance?

Post by dgdevil »

My parents have only just begun getting their inheritances, in their 70s. And they are too old to enjoy it by traveling, etc. I do not know the sums involved, probably decent. They are hard-working and successful, but I think they might have appreciated some help in their 40s when it came time to pay private school fees, etc. Hopefully you can let your children know that the Bank of Dad is always open to consider requests. Consulting with an attorney to set up appropriate trust funds is a good idea. I am sure you have brought them up to know they must not squander this good will.
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Matahari
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Re: When to give adult children their inheritance?

Post by Matahari »

You didn't say how much money you plan to transfer to your children. However, if you believe that the amounts are potentially "life changing" and might cause them to change their approach to their careers and their lives, I would not transfer the funds until they are well established in their careers.

That said, if you can really afford to part with the money, i.e., you definitely won't need any of it to fund your retirement or late-in-life care, then you should:

(1) make annual gifts with the suggestion that these are funds they should manage for the long term. This will get them used to investing and allow you to get comfortable with the idea that they will have large sums to manage at some later date.

(2) make gifts to help with "good" things like the down payment for a house or seed money for a business.

(3) if your children prefer to pursue less remunerative but worthy careers, subsidize their worthy pursuits with their early inheritance.

If you are worried about it, it's not a good idea to transfer so much money to your children in their 20s that they "might never have to work again."
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NaOH
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Re: When to give adult children their inheritance?

Post by NaOH »

My feeling is that wanting young adults to not be rash and misspend their inheritances early is wise, but that it also seems kind of unproductive to not allow access to it for legitimate uses, like settling school debt or a downpayment on a home.

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Brian 2016
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Re: When to give adult children their inheritance?

Post by Brian 2016 »

Perhaps spreading distributions at ages 30, 40, 50 and 60 (25% each).

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DFrank
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Re: When to give adult children their inheritance?

Post by DFrank »

We have no children, so we are leaving our money to our nieces and nephews (10 at last count). We aren't talking about the kind of money where they wouldn't have to work, so maybe not directly comparable to the OP, but this is what we did:

At 40 they can withdraw 50% of their share, and at 45 they can withdraw the balance.

Once they are 18 they can 'apply' to the trustee to have money from the trust applied to the costs of their education.

Once they are 25 they can apply to the trustee to have money from the trust for the following purposes: Purchase or refurbish their primary residence, Establishment or investment in a business that will provide their primary livelihood, Development of a prudent investment program (which they must work with the trustee to develop), or to compensate them for engagement in public service in which compensation is below comparable standards for private business.

Our trustee is my youngest brother who is an accountant, has a good head on his shoulders, and understands what our intentions are.
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island
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Re: When to give adult children their inheritance?

Post by island »

DFrank wrote:We have no children, so we are leaving our money to our nieces and nephews (10 at last count). We aren't talking about the kind of money where they wouldn't have to work, so maybe not directly comparable to the OP, but this is what we did:

At 40 they can withdraw 50% of their share, and at 45 they can withdraw the balance.

Once they are 18 they can 'apply' to the trustee to have money from the trust applied to the costs of their education.

Once they are 25 they can apply to the trustee to have money from the trust for the following purposes: Purchase or refurbish their primary residence, Establishment or investment in a business that will provide their primary livelihood, Development of a prudent investment program (which they must work with the trustee to develop), or to compensate them for engagement in public service in which compensation is below comparable standards for private business.

Our trustee is my youngest brother who is an accountant, has a good head on his shoulders, and understands what our intentions are.
DH and I are have a similar situation. No kids, plan to leave to nieces and nephews, charity. Haven't begun to do our estate planning yet so that may change, but I'm curious how it works when you distribute by age, how you invest it, and how you determine each share?

Say 1st beneficiary comes of age and takes his or her share so it's no longer in the pot to grow. Next one comes of age 2 years later and takes his/hers and less in the pot. Few years later another and its when the market is in a slump and everything has dropped when withdraws or is way up when that one withdraws. Ups and downs with the investments. So how do you insure that by the time #10 comes along s/he's not scraping the bottom of the barrel?

How do you keep shares equal when everyone is withdrawing at different times?

And if one of the nieces or nephews is deceased, what happens that beneficiaries share?
Thanks.
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Peter Foley
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Re: When to give adult children their inheritance?

Post by Peter Foley »

Our approach has been to gift some it now to help our adult children with the expenses of owning their first homes and paying for some our grandchildren's childcare expense. These "early" gifts can really help to reduce stress in young families - it helps them to enjoy their own children ( our grandchildren). So I would not wait until after death to do the first bequests. I tend to agree with a couple of others that with large life changing amounts, full bequests should be staggered a bit - perhaps when the youngest is age 30 and again at age 40. If you have responsible children, I would not stretch it out too much because I believe it sends the message that you don't trust them.
letsgobobby
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Re: When to give adult children their inheritance?

Post by letsgobobby »

Dazed, why don't you give each of your kids $10,000 and see what happens? No harm, no foul, and perhaps you learn something.
Caduceus
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Re: When to give adult children their inheritance?

Post by Caduceus »

This will depend on the children and the family dynamics, but I think giving life-changing sums of money to young adults may rob them of the chance or desire to make their own way in the world.

Paying off educational loans and a generous gift to aid with a downpayment on a first home is one thing. I am not inclined to let my kids know that they are inheriting anything at all from me. I think when the time is ripe I will even remind them that they should not expect anything from me, and that their life is what they make of it.

Struggling a little to find your financial footing as a young adult is part of growing up. I don't want my children to be protected from that. It doesn't mean I won't help in a true emergency though.
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Re: When to give adult children their inheritance?

Post by Professor Emeritus »

We have transferred money to our daughters. It's not enough so that they don't have to work but it is enough that they and their husbands can decide to have children when the time is right rather than worrying about "affording" them (about 200 k each). We now have 2.91 grandchildren and we think the money was well worth it. Of course the kids were solid citizens.
Our older daughter in one year finished her PhD in computational molecular biology, Captained the national champion Synchronized figure skating team and had a baby. The younger one won a Bar association award for "bringing Honor to the legal profession" for her work with battered women. Both are married homeowners with fine husbands .
We are currently funding the grand children's education fund. They support their children but we will support their educations.

The Girls know that all the money so far has come from money My wife inherited from her family AND NEVER SPENT. That makes them very careful. One amusing sidelight is that whenever we gave them money, they would ask "is this all for saving or can we spend some?"
QBoy
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Re: When to give adult children their inheritance?

Post by QBoy »

If the sum is large, you might consider a trust that pays the money out gradually over your children's lifetimes. One advantage if properly set up is that the principal will not enter your children's estate when they die and leave the money to your grandchildren.
MarkBarb
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Re: When to give adult children their inheritance?

Post by MarkBarb »

I like splitting it. Early for a stipend that can be used for some travel. Later for the bulk. My worry is that they would be tempted in their 20's to use it to buy more house than is appropriate at that age.

Just as important is stressing to them that they should never commingle a significant inheritance with a spouse. Just in case something goes wrong, you don't want your life savings to go into the hands of your child's ex spouse. Of course, I would council them to treat any spousal inheritance the same way.
Swampy
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Re: When to give adult children their inheritance?

Post by Swampy »

I'm working on that same problem myself, complicated by funding a Special Needs Trust as well.

I plan on keeping IRA's out of the trust and let the kids decide individually (after we die) how they want to spend that money down. If they blow it, they will have a long dry spell...and a very good lesson in life.

As far as the money left in a trust, they would only have access to capital gains and dividends that are declared distributions by the fund. All principal would otherwise be retained until they reach an age that, I believe, should have allowed them to evolve into mature minded, responsible adults.

The age could be whatever I am comfortable with. At this time, I'd say 40 - for my kids.
That said, I've met highly immature 50 year old trust fund babies. One, in particular, comes to mind. She had a $15,000 a month allowance from her parent's trust fund. She preferred to live (and spend) like royalty, so by mid-month it was always gone! She then lived like a pauper for the last half of the month. I never figured that out.

With regards to the SNT, it is a completely different instrument and has to potentially last 60+ years.

With God's grace, maybe I will see the kids are OK when they are 40 or 50.

Do you remember the old 60's slogan "Never trust anyone over 30?"

I'd reverse that slogan with regards to trust money "Never trust anyone UNDER 30."
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Grt2bOutdoors
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Re: When to give adult children their inheritance?

Post by Grt2bOutdoors »

Try this - give each child an upfront advance to get started in life. Observe how they handle the first advance on their inheritance, the sum need not be significant. If they run out and buy a fancy car, you'll know they are incapable of managing money and you can then adjust your trust accordingly. Each child will be different, whether they are accomplished in life or not, some are born savers/investors, some will spend whatever flows through their hands. At that age, your kids may be influenced by peers as well. All things to be considered in your planning.
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ryman554
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Re: When to give adult children their inheritance?

Post by ryman554 »

island wrote: Say 1st beneficiary comes of age and takes his or her share so it's no longer in the pot to grow. Next one comes of age 2 years later and takes his/hers and less in the pot. Few years later another and its when the market is in a slump and everything has dropped when withdraws or is way up when that one withdraws. Ups and downs with the investments. So how do you insure that by the time #10 comes along s/he's not scraping the bottom of the barrel?

How do you keep shares equal when everyone is withdrawing at different times?

And if one of the nieces or nephews is deceased, what happens that beneficiaries share?
Thanks.
We solved it (mostly) in the following way:

We only have two kids, so it's easier....

1. General pool of $$ designed to get the kids through college and into grad-school. Unless it's education or medical (or well-being when they are younger), the money is closed off.
2. When the last kid is out of school, we "split the pot" 50/50.
3. Each pot is now independent, and releases funds when the individual kid hits 25,30,35, and 40. Trustee also has discretion to release funds for true emergencies, but it comes out of their personal pot at that point.

Close enough... general fund to make sure everybody gets some baseline amount of support. And then just split it. <shrug>
SaveAShilling
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Re: When to give adult children their inheritance?

Post by SaveAShilling »

My mother has been gifting us (adult children and young adult grandchildren) $12,000 each year from Dad's unexpectedly large inheritance left to her in a trust. She doesn't need it to live and the trust comes to the adult children after she dies. The gifts have been most helpful. The grandchildren were able to start Roth IRAs with the money up to the amount they earned in the summer. Most of the rest was invested in taxable accounts. So they were able to invest young. My husband and I were comfortable but the gift money each year allowed us more freedom in the way we thought about money. I came here and became much more educated. Some of the money may have been spent frivolously but most was invested. So the grandchildren leaned about investing much sooner than they might have otherwise. This method has worked very well for my family.
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Re: When to give adult children their inheritance?

Post by angelescrest »

Peter Foley wrote:Our approach has been to gift some it now to help our adult children with the expenses of owning their first homes and paying for some our grandchildren's childcare expense. These "early" gifts can really help to reduce stress in young families - it helps them to enjoy their own children ( our grandchildren). So I would not wait until after death to do the first bequests. I tend to agree with a couple of others that with large life changing amounts, full bequests should be staggered a bit - perhaps when the youngest is age 30 and again at age 40. If you have responsible children, I would not stretch it out too much because I believe it sends the message that you don't trust them.
It's a very small amount, but this is what the folks are doing for us as we walk this stage. It does not impact our lifestyle per se, but the money is specifically used for daycare that lets get through a very stressful stage where one of us is in school and we have less income. It's hard to balance between school/work and kids, and the small amount helps us do it a little more freely. In my mind, gift money that goes to a specific use, whatever it is, is not only the most helpful but prevents lifestyle creep. If they gave us a lot more without any designations, then while we certainly would save the majority of it, we would probably end up buying a new car or something else that's not entirely necessary.
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lthenderson
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Re: When to give adult children their inheritance?

Post by lthenderson »

I vote for sitting down with your children and having a talk. I've had the talk with my parents. It gave my parents a chance to voice how they would like to see their inheritance used, preserved, etc and it gave them a chance to see my state of mind and attitude towards a large sum of money. We are all on the same page so when the time is right for them to start giving gifts of money, neither side will be surprised.
DFrank
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Re: When to give adult children their inheritance?

Post by DFrank »

island wrote:
DFrank wrote:We have no children, so we are leaving our money to our nieces and nephews (10 at last count). We aren't talking about the kind of money where they wouldn't have to work, so maybe not directly comparable to the OP, but this is what we did:

At 40 they can withdraw 50% of their share, and at 45 they can withdraw the balance.

Once they are 18 they can 'apply' to the trustee to have money from the trust applied to the costs of their education.

Once they are 25 they can apply to the trustee to have money from the trust for the following purposes: Purchase or refurbish their primary residence, Establishment or investment in a business that will provide their primary livelihood, Development of a prudent investment program (which they must work with the trustee to develop), or to compensate them for engagement in public service in which compensation is below comparable standards for private business.

Our trustee is my youngest brother who is an accountant, has a good head on his shoulders, and understands what our intentions are.
DH and I are have a similar situation. No kids, plan to leave to nieces and nephews, charity. Haven't begun to do our estate planning yet so that may change, but I'm curious how it works when you distribute by age, how you invest it, and how you determine each share?

Say 1st beneficiary comes of age and takes his or her share so it's no longer in the pot to grow. Next one comes of age 2 years later and takes his/hers and less in the pot. Few years later another and its when the market is in a slump and everything has dropped when withdraws or is way up when that one withdraws. Ups and downs with the investments. So how do you insure that by the time #10 comes along s/he's not scraping the bottom of the barrel?

How do you keep shares equal when everyone is withdrawing at different times?

And if one of the nieces or nephews is deceased, what happens that beneficiaries share?
Thanks.
At the time of death the balance of our estate is divided into equal shares, one for each of our nieces/nephews. If any of our nieces/nephews has predeceased us, and if they have children, their share is set aside for their kids. If any have predeceased us and don't have children their share is effectively split among the others.

I'd have to review the language in detail, but effectively what happens is each share is managed individually. They would be invested identically, so returns would be the same for each share. I know there is some language in the trust that addresses assets that can not be divided, but I don't think we will have any in that category. I don't think there is a way to fully address the possibility that some could be withdrawing their share at a market peak, and others during a trough. You'd have to weigh that issue against your feelings about at what age you are comfortable giving them the money. I think our considerations for choosing 40 & 45 was that at that age they are old enough that this would not be demotivating (although as I said, probably not a life changing amount of money in any case), that they should be responsible financially by that age (if not by then, probably never), and they may be at the age where they are getting close to sending their kids to college, so this could be a help with that.

Assuming my wife and I reach something close to average life expectancy most will probably get their distribution immediately. I am 60, my wife is 52. 8 of the 10 are in the age range of 19-27, so there is a good chance most of them would be over 45 at the time the last of us dies. The youngest is 3, so there is a reasonable chance he may not get his share immediately. He happens to be the trustee's son.

Personally, I think the availability of a trustee that you think you can count on and who has the right skills should be a consideration. We're lucky that my brother meets those criteria, and he's fully capable of managing this for a while if need be.

It sounds complicated, and it would be if my wife and I were hit by a bus tomorrow, but practically speaking it probably won't turn out that way, at least I hope not!
Dave
letsgobobby
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Re: When to give adult children their inheritance?

Post by letsgobobby »

I am 41, my sister 37. Both doctors, married to good working people, with kids, responsible with money to a fault. My parents have a large estate and I am executor. They clearly have more than they need and often mention wanting to not spend the money so they can leave "something" for us. Neither I nor my sister have any need for the money, now for sure, nor later as far as we can tell, though of course no one would complain about it if it were to materialize.

So about 5-8 years ago my dad told me that he realized he had enough and that he would start giving some of the money to us now. He decided he would start buying us plane tickets to go on vacation with him. I said, sure, thanks, sounds good. That never happened. That doesn't mean my parents aren't generous. They gifted us about $50k between our two kids to jump start their 529s, and do occasionally buy airplane tickets using miles. However aside from the 529 contributions there was no meaningful shift in their behaviors with respect to substantial wealth transfer.

I think what happened is my dad's anxiety just got the best of him and he decided he wasn't really sure he had enough to live on after all. Factually that is not correct, but it is his money.

Our own kids are 5 and 8 so too early to transfer to them, and besides we need our own money for the time being. Our estate plan leaves them assets in trust and they become co trustee by age 31 (I think). However if we get to that point 25 years from now and are still alive, I believe I'd be inclined to make regular small annual gifts to my responsible young middle aged adult kids in the neighborhood of the annual gift tax exclusion. It seems like the hardest time financially for families is when kids are young, and they are juggling day care, after school care, babysitting, college savings, a parent who may be part time or stay at home, needing to get into more space in a bigger home, etc. $14,000-$28,000 or so per year to a young family is real money that could make a big difference.

Back to my own situation. My parents are average age 75 and generally good health. Last week we went hiking in the Grand Canyon; next week they are backpacking in Haleakala. So they could easily live a decade or two longer, or more. If their estate plan does not change, my sister and I will inherit quite a bit of money when we are in the neighborhood of sixty-seventy years old. Our own kids will be well out of college by then. Barring catastrophe, each of us will be already retired or working only because we want to. Any money received at that point will be too late to make a qualitative difference in our life trajectories. What if my sister had wanted to stay at home with her young kids for a few years? What if I wanted to take a sabbatical for a year? These aren't literally unaffordable for us now but as we all know found money feels different than earned money and there can be a positive as well as negative side to that coin.

just a few things to think about for the OP.
SQRT
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Re: When to give adult children their inheritance?

Post by SQRT »

Being Canadian our tax issues are different. No gift or estate taxes. Only have one daughter, currently 31 who is getting married later this year. We are 64 and 57. Will leaves the residual of estate to daughter once she turns 35 which she will almost certainly have achieved on our passing. My current plan is to fund a down payment for a house (maybe $500-700k) and then help them periodically while we are alive. The amount of this help will depend on how well our portfolio does. I would rather see the results of our assistance and it seems silly to wait to bequeath a large sum(likely mid 8 figures) until she is in her sixties. I am also considering gifting some stock to her which would pay annual divs of $25k-$50k. This would not be in a trust. This amount would help fund the normal higher expenses of early stage marriage. I could trust her implicitly not to spend the principal.
Both daughter and especially fiancé are very responsible, hard working young people so I am not very concerned about the effect gifts might have on their work ethic. I believe that the value of struggle is greatly overrated and I really could have used some help like this when I was younger.
Last edited by SQRT on Tue Apr 07, 2015 10:22 am, edited 1 time in total.
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HomerJ
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Re: When to give adult children their inheritance?

Post by HomerJ »

Dazed wrote:Some background on the "kids":
One will be graduating university in June, has job lined up after college.
Other, two years post-university, is working at start-up company.
Both have proven to be motivated, live within their means, and are fiscally responsible (I think the whole "poor college student" lifestyle really helped them in this regard.
They know how to live on the cheap, if necessary.)
You'd be insane to give kids that young enough money so they'd never have to work again...

Even 25 or 30 is way too young.

Now, if you're talking about a will.... then I like the idea of setting up trusts and giving them 1/3 at 25, 1/3 at 30, and 1/3 at 35..

But if you're still living, it would be a horrible idea to give them a ton of money before they establish themselves. They will never have the pride of making it on their own... Why would you take that from them?

If you're dead, it's a different matter...
Maybe I'll get lucky and live to 90+ and this will be a moot point :) (I am in my early 60's, btw)
Okay, so you're talking about a will? That's okay... Your OP title was unclear. Sounded like you wanted to just hand them a bunch of money today.
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Re: When to give adult children their inheritance?

Post by bsteiner »

Instead of requiring distribution at a specified age or ages, our clients instead provide that each child gets control of his/her trust at a specified age or ages. For this purpose, control means the right to become a trustee, the power to remove and replace his/her co-trustee (provided the replacement trustee is not a close relative or subordinate employee), and the power to appoint (give or leave) the trust assets to anyone he/she wants (other than the child or his/her estate or creditors).

This keeps the inheritance out of the child's estate for estate tax purposes, and better protects it against the child's creditors and spouses.

The above is for clients in the United States. The periodic application of the Canadian capital gains tax to trusts on a mark-to-market basis is beyond the scope of this comment. Similarly, the periodic inheritance tax on trust assets in the UK is beyond the scope of this comment.
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HomerJ
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Re: When to give adult children their inheritance?

Post by HomerJ »

Professor Emeritus wrote:Our older daughter in one year finished her PhD in computational molecular biology, Captained the national champion Synchronized figure skating team and had a baby.
Heh, she did all that in one year? Was 8 months pregnant but still skating, and writing her dissertation?

Color me impressed... :)
dgdevil
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Re: When to give adult children their inheritance?

Post by dgdevil »

HomerJ wrote: But if you're still living, it would be a horrible idea to give them a ton of money before they establish themselves. They will never have the pride of making it on their own... Why would you take that from them?
Don't know about "a ton of money." But a nice cash infusion might give them the freedom to work in a rewarding, but low-paying, field with greater benefit for society. Social work or songwriting, for example.

Especially if the alternative is working for The Man in cubicle drudgery so that they can afford healthcare (especially punitive for many in the middle class in the Obamacare era) or the next mortgage payment, etc.
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HomerJ
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Re: When to give adult children their inheritance?

Post by HomerJ »

SQRT wrote:Being Canadian our tax issues are different. No gift or estate taxes. Only have one daughter, currently 31 who is getting married later this year. We are 64 and 57. Will leaves the residual of estate to daughter once she turns 35 which she will almost certainly have achieved on our passing. My current plan is to fund a down payment for a house (maybe $500-700k) and then help them periodically while we are alive. The amount of this help will depend on how well our portfolio does. I would rather see the results of our assistance and it seems silly to wait to bequeath a large sum(likely mid 8 figures) until she is in her sixties. I am also considering gifting some stock to her which would pay annual divs of $25k-$50k. This would not be in a trust. This amount would help fund the normal higher expenses of early stage marriage. I could trust her implicitly not to spend the principal.
Both daughter and especially fiancé are very responsible, hard working young people so I am not very concerned about the effect gifts might have on their work ethic. I believe that the value of struggle is greatly overrated and I really could have used some help like this when I was younger.
Be careful this doesn't affect the spouse... I can imagine it would be very nice to get a million dollars from your new wife's parents in your early 30s... but I can also imagine it would be troubling too... Even if the parents-in-law weren't the meddling types (and many would be, after contributing that much money), for some people there would be a pride issue (maybe buried deep in the subconscious, but there).
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bertie wooster
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Re: When to give adult children their inheritance?

Post by bertie wooster »

This is a great question. I think it's great that your children have "proven" themselves so to speak but this sounds like a lot of money. Dropping $5 million or whatever on someone in there 20's may not be the best thing. But the opposite is also not helpful. If they get all of there inheritance in there 60's, once they are established and have a great deal of their own wealth, then what's the point?

I think it his helpful to help with a substantial purchase of the house that they will settle into once they "settle down" (either married and starting a family or when they move to a place they'll stay in for awhile and want to buy a place) - which typically occurs in your 30's. No point in helping them buy some fancy place now in there 20's.

You might try helping with (or totally contributing) their retirement contributions now (Roth's, 401k's) so they have a little more money to spend. I also like the idea of giving each $10-$20k and seeing what they do with it, just so you have an idea of their relationship with money.

You are generous parents and you children are very lucky!
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gasdoc
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Re: When to give adult children their inheritance?

Post by gasdoc »

In our wills, we designated a portion to be used only for education, and then the remainder at age 35. This way, our priorities are known, and there is the opportunity to grow and mature, and when they are ready to buy a house or upgrade to a larger house for a growing family, additional resources will be available. And they will have learned to "eat what you kill" before they receive the rest of the money.
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Re: When to give adult children their inheritance?

Post by SQRT »

HomerJ wrote:
SQRT wrote:Being Canadian our tax issues are different. No gift or estate taxes. Only have one daughter, currently 31 who is getting married later this year. We are 64 and 57. Will leaves the residual of estate to daughter once she turns 35 which she will almost certainly have achieved on our passing. My current plan is to fund a down payment for a house (maybe $500-700k) and then help them periodically while we are alive. The amount of this help will depend on how well our portfolio does. I would rather see the results of our assistance and it seems silly to wait to bequeath a large sum(likely mid 8 figures) until she is in her sixties. I am also considering gifting some stock to her which would pay annual divs of $25k-$50k. This would not be in a trust. This amount would help fund the normal higher expenses of early stage marriage. I could trust her implicitly not to spend the principal.
Both daughter and especially fiancé are very responsible, hard working young people so I am not very concerned about the effect gifts might have on their work ethic. I believe that the value of struggle is greatly overrated and I really could have used some help like this when I was younger.
Be careful this doesn't affect the spouse... I can imagine it would be very nice to get a million dollars from your new wife's parents in your early 30s... but I can also imagine it would be troubling too... Even if the parents-in-law weren't the meddling types (and many would be, after contributing that much money), for some people there would be a pride issue (maybe buried deep in the subconscious, but there).
Yes, this is a consideration but he is 35 on his next birthday and very responsible. We are definitely not meddlers and that is actually why I would want to gift her the money and be done with it. She can spend the income as they see fit. The alternative of responding to ad hoc requests for funds would be riskier from a "meddling" perspective, I think. Need to consult with my family law lawyer before we do any of this. Divorces can really screw these kinds of things up.
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Re: When to give adult children their inheritance?

Post by Grt2bOutdoors »

HomerJ wrote:
Professor Emeritus wrote:Our older daughter in one year finished her PhD in computational molecular biology, Captained the national champion Synchronized figure skating team and had a baby.
Heh, she did all that in one year? Was 8 months pregnant but still skating, and writing her dissertation?

Color me impressed... :)
I was thinking the order of completion was much different than written. :wink:
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
island
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Re: When to give adult children their inheritance?

Post by island »

dgdevil wrote:
HomerJ wrote: But if you're still living, it would be a horrible idea to give them a ton of money before they establish themselves. They will never have the pride of making it on their own... Why would you take that from them?
Don't know about "a ton of money." But a nice cash infusion might give them the freedom to work in a rewarding, but low-paying, field with greater benefit for society. Social work or songwriting, for example.

Especially if the alternative is working for The Man in cubicle drudgery so that they can afford healthcare (especially punitive for many in the middle class in the Obamacare era) or the next mortgage payment, etc.
There are much harder jobs that "cubicle drudgery" and what if the parents amassed their savings by working as such for "The Man"? They work hard and save hard so the kids don't necessarially have to? That makes no sense to me.
dgdevil
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Re: When to give adult children their inheritance?

Post by dgdevil »

island wrote: There are much harder jobs that "cubicle drudgery" and what if the parents amassed their savings by working as such for "The Man"? They work hard and save hard so the kids don't necessarially have to? That makes no sense to me.
Every job has its drudgery, though cubicles - and what they represent - are pretty much the ultimate humiliation for white-collar workers. Anyway, I get the sense from some of these posts that the inheritances began with grandparents and beyond, that the parents are too old to enjoy the money, and they realize, ¨What the hell? Let's live to see our own children enjoy it.¨ This modern age thing was supposed to make lives easier. It did not always turn out that way.
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Re: When to give adult children their inheritance?

Post by linenfort »

Dazed wrote:Would love to hear from others who are in a similar situation (or not) and how they have elected to handle it in their trust.
On the receiving end here. My siblings and I began to receive something ~age 30-35 when our parents were in their early 60s. It's an annual gift, within the limits of non-taxable giving. So far, so good. We aren't entirely corrupted yet. And it's not enough to quit work.
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Dazed
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Re: When to give adult children their inheritance?

Post by Dazed »

OP here- thanks to ALL of you for your incredibly thoughtful suggestions/personal plan implementations. Very eye-opening and a lot to chew on!
Frankly, I found it refreshing to see how many of you have complete faith in your children, the foundation you have set for them, their decision-making abilities
and therefore are happy to "gift" them to help out while you are alive. I am squarely in your camp.

To answer a question asked:
If I (single parent, early 60's) were to kick the bucket tomorrow, they would both be set to inherit something in the low seven figures. Of interest, perhaps, is that they haven't a clue as to my NW as I choose to live way below my means. Just can't think of anything material that would improve the quality of my life. I feel blessed and do spend on travel and charitable gifts. And the Bank of Mom got them through college with no debt or money worries. Some have suggested that I sit down with my kids to talk about the estate plan. Certainly my children have figured out that we are "well off ", but think they'd be surprised to say the least, at the actual figures. So what does one discuss with them exactly and in how much detail? They are currently 22 and 24.

I really hope to get lucky and grow very old, so I'll have the pleasure of seeing where their paths take them. Right now, they are just coming out of the gate, as it were, and have a lot of freedom as they are single without families to support. I might mention that they were raised in the SF Bay Area and love the creative energy/vibrancy there. One is working in SF and the other will be working in Silicon Valley after graduation.
I mention this because with the COL what it is, those "gifting" suggestions will certainly be used and potentially necessary if they ever want to actually buy a home there. Yes, it's outrageously expensive there, and I've seen a lot of chatter about it on this board. It can be a head-scratcher to those who haven't lived there. But for those who have, we know why folks want to be there regardless...
well, actually, I moved to the beach :beer
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Re: When to give adult children their inheritance?

Post by Meg77 »

I can speak from experience as the recipient of inheritances. My grandparents (still living) began making annual gifts to a trust for each grandchild when I was a toddler (I'm 31 now). When I started looking at colleges I was told about the funds - and that ultimately I'd get to keep what was leftover after education expenses (the trust was set up to dissolve when I turn 35).

The knowledge of the funds was important, and I recommend at least informing your kids about the money even years before they receive it. It guided my choice of school and interests; I ended up switching my major to finance and becoming passionate about personal finance while researching how to manage my own (future) wealth. It also benefited me to know there was a large "safety net" there and enabled me to take risks like buying rental property and contributing more to retirement accounts than I otherwise would have been comfortable tying up.

As an aside, I was always glad the trust wouldn't be "mine" until 35 since I assumed I'd be married by then (I am now). The money is by definition separate property, so I didn't feel the need for a prenup, and I'll have been married for 5 years before I get control of the funds, so what to do with the money is a non-issue in these early years of our marriage. Not that my husband would want to use it to pay off his student loan debt or start some wacky business, but that may not have been the case with every guy I dated...

I also think it helped that the grantors (my grandparents) were and are still around to see how we use the funds. The unwritten rule has been that we can take money out for education, investing/business purposes, or for a necessity such as a car - but not just to blow or supplement our lifestyles. I think all of us have benefitted from having a say in the management of the funds and being able to request distributions from the trustees (parents/aunts and uncles). We all learned a lot before having control, and we were all allowed some discretion to make our own decisions. If I'd been handed the whole $250K outright at 22 the results may have varied. Even though I was responsible I may have made poor investment decisions.

My parents - and each of their spouses - got annual gifts directly, which I know was a huge help as they all had young kids and could use the money for things like summer camp and private school that they otherwise couldn't have afforded. A few years ago my grandparents went ahead and doled out most of their estate to each of their children and quit doing annual gifts. I think there was one other larger lump sum gift 5-8 years ago. The timing had simply to do with changes to estate law, but their kids are all in their early/mid 50s now. The gifts have helped them pay off mortgages and finalize retirement plans. My mom actually abstained (or whatever the legal word is) and let me and my siblings have a small portion of her inheritance. It was about $50K and she was worried as you are and asked me what I thought before doing so, since we were all in our 20s. I told her it was better to do this as a "test run" so she could see how we handled it (we all did fine).

In short I don't think age matters, and windfalls can be a huge help at any age. It would be a shame for a child not to pursue a dream or to marry more for money than love when otherwise - if they'd had or known about this money - they may have evolved different mindsets. Only you know your kids though. Money is just a tool; it can enable very bad habits and life decisions or very good ones.
"An investment in knowledge pays the best interest." - Benjamin Franklin
FredL
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Re: When to give adult children their inheritance?

Post by FredL »

you probably need to read this first before giving money to your children
http://en.wikipedia.org/wiki/Poor_Littl ... tton_Story
Giving too much money to your children may or may not be good. For most people funding children's or grandchildren's education or retirement money probably a good choice. Sometimes, may be in the form of matching fund. If your child expired to do something meaningful but not necessarily a money making career such as actor or want to compete in Olympics, you can help them. If they want it for day trading, no.
letsgobobby
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Re: When to give adult children their inheritance?

Post by letsgobobby »

Dazed wrote:OP here- thanks to ALL of you for your incredibly thoughtful suggestions/personal plan implementations. Very eye-opening and a lot to chew on!
Frankly, I found it refreshing to see how many of you have complete faith in your children, the foundation you have set for them, their decision-making abilities
and therefore are happy to "gift" them to help out while you are alive. I am squarely in your camp.

To answer a question asked:
If I (single parent, early 60's) were to kick the bucket tomorrow, they would both be set to inherit something in the low seven figures. Of interest, perhaps, is that they haven't a clue as to my NW as I choose to live way below my means. Just can't think of anything material that would improve the quality of my life. I feel blessed and do spend on travel and charitable gifts. And the Bank of Mom got them through college with no debt or money worries. Some have suggested that I sit down with my kids to talk about the estate plan. Certainly my children have figured out that we are "well off ", but think they'd be surprised to say the least, at the actual figures. So what does one discuss with them exactly and in how much detail? They are currently 22 and 24.

I really hope to get lucky and grow very old, so I'll have the pleasure of seeing where their paths take them. Right now, they are just coming out of the gate, as it were, and have a lot of freedom as they are single without families to support. I might mention that they were raised in the SF Bay Area and love the creative energy/vibrancy there. One is working in SF and the other will be working in Silicon Valley after graduation.
I mention this because with the COL what it is, those "gifting" suggestions will certainly be used and potentially necessary if they ever want to actually buy a home there. Yes, it's outrageously expensive there, and I've seen a lot of chatter about it on this board. It can be a head-scratcher to those who haven't lived there. But for those who have, we know why folks want to be there regardless...
well, actually, I moved to the beach :beer
You should read at least two books.

First is by the Condons, beyond the Grave 2nd edition. Two lawyers describe the traps and pitfalls of leaving big money to kids, and the discussions that must occur. Great read. Bottom line: for the benefit of everyone involved, you should leave your money to your kids in the form of a trust.

Second, Family Wealth by James Hughes. An MBA and heir of the Carnation milk fortune has made a career of advising other wealthy families (much more than you or I). Contemplative and aspirational writing, very good coverage of the conversations you'll want to have with your kids.

Also the WSJ or NY Times recently did a series on transferring generational wealth. They were worth skimming, as well.
nonurseorpurse
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Re: When to give adult children their inheritance?

Post by nonurseorpurse »

Interesting topic and responses. I'm in a similar situation, widowed mother with 2 adult children.
When setting up my revocable trust, the inheritance was distributed at different ages. Now that the kids are in their 30s and 40s I revised the trust to distribute assets upon my death. They are both responsible adults and would use the money wisely.

They are aware of my finances and I share my net worth statement with them annually and update all account information. They also have a list of important people to contact upon my death, broker, CPA, health insurance, etc. I think it's important for them to know your financial situation but you don't have to reveal all the numbers if you decide they're not ready. It's stressful enough just getting through everyday motions after a death. Having to guess where documents are located and start learning everything from scratch would add to the stress.

When my kids graduated from college and started a "real" job, I donated $2,000 to a Roth IRA for 10 years for each. You can tell this was a long time ago! The understanding was they would not touch the money until they retired and this is to be their inheritance. I told them I'm spending the last penny the day I die, I just haven't figured out the particulars yet! That part of the estate plan relieves me of worrying about passing on an inheritance. The 10 years has expired, so now I match their Roth IRA contributions up to $2000. Where else can you get a 100% guaranteed return!

I'd also suggest reading "The Millionaire Next Door" by Stanley and Danko. Especially the part on economic outpatient care. There is a fine line between helping and hurting when it comes to giving significant amounts of money. I elect to give cash gifts annually and do not put any limits on the use of the money. I did give a significant amount of money for a down payment on the purchase of a home and stipulated the money was for only that use.

The 4 grandkids are also benefiting from contributions to their 529 plans. About 25% of their post-secondary education costs will be covered by the contributions.

Good luck with your decision!
hoopy
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Re: When to give adult children their inheritance?

Post by hoopy »

WhiteCoatInvestor has an interesting perspective on this: http://whitecoatinvestor.com/building-w ... enerations
itstoomuch
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Re: When to give adult children their inheritance?

Post by itstoomuch »

Need a future DIL. :D
Have DS. Doing well. Doesn't need money or assets but pretty sure he won't turn it down if offered. :annoyed
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
TradingPlaces
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Re: When to give adult children their inheritance?

Post by TradingPlaces »

sleepysurf wrote:I recently grappled with this question when updating my Trust/Estate Plan. Rather than giving my (currently 22 y/o) daughter lump sum distributions at various ages, I earmarked an annual "stipend" of $XX,000 (with COLA adjustments) to supplement her annual income, and $10,000 more annually if she starts Grad School (in an accredited program), then an additional $10,000 annually once she graduates. That provides a stable foundation for the future, and motivates her to remain ambitious in her future career (and hopefully Grad School). It would also likely pass $$ along the her future children. The designated Trustee has discretion to release additional sums of money for health issues, purchasing a home, etc.

Nice! Merit based. I like that.

What about other milestones:

- getting married,
- having children,
- buying a house.

All of these are important milestones, but can be expensive. If you earmark gifts for these occasions, it will be a nice way for them to help celebrate the occasion.
expat
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Re: When to give adult children their inheritance?

Post by expat »

Who would be the trustee? They will be taking fees all those years.

I say that let the young have the wealth immediately.

If they lose it, they will have learned a lesson and will probably have the time to rebuild a sufficient retirement fund.
TradingPlaces
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Re: When to give adult children their inheritance?

Post by TradingPlaces »

hoopy wrote:WhiteCoatInvestor has an interesting perspective on this: http://whitecoatinvestor.com/building-w ... enerations
Some brilliant ideas, but also some poor examples:

- 4 kids, married,
- each of whom has 4 kids, also married,
- each of whom has 4 kids unmarried.

Hmm. Average age to get married: 24. To have 4 kids, let's say years 24-30. Thus, in order for 3 generations to have 4 kids each, the gift-giving grandm and grandpay have to be 90! Is this a realistic example?

Who has 4 kids these days? Average is 2.1. Also, making an assumption that 3 generations in a row each household has 4 kids is like a 20-sigma event.

More appropriately, you have the following:

- 2 kids, married. 1 kid, on average divorced,
- each kid has 2.1 kids, on average, so total of 4.2 kids,
- of the 4.2 grandkids, half are married, and among the married ones, you might get a total 1 or 2 grand-grand-kids.

So we have a total of about 10 people that can get an annual, tax-exempt gift. A far cry from 104.

I think his other examples are also very hypothetical. E.g.,:

- spouse in higher risk occupation decides to keep everything in the other spouses names. Examples given: cars, boats, and house. Nice. So how is owning multiple cars and boats about wealth preservation? And what percentage of the total assets can "assets" like cars and boats occupy? 5%? Heck, for us, it is not even 1%. Nice asset protection plan.

I know Mr. White Coat investor is a fellow poster, but I found that particular blog posting not as useful as it might appear.
TradingPlaces
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Re: When to give adult children their inheritance?

Post by TradingPlaces »

Here is my suggestion:

- come up with life events that you think are important,
- compute what is the cost to these life events, and how do you think these life events will contribute to maturity-level of your kids,
- draft a gift plan that rewards your kids on the basis of achieving these events.

E.g.:

- get accepted to college. Can be qualified further, e.g., if school in top 50 of US News and World report, extra gift,
- graduating from college,
- getting a job,
- getting into grad school,
- graduating from grad school,
- buying a house,
- buying a car,
- getting married; in this circumstance, the other kids might also get gifts. E.g., Kid #1 gets married, and gets $10K. Other kids each get $2.5K. Why is this important? Well, this is a family occasion, and having extra money around this event would be helpful,
- having kids. This could be very useful in the following sense. Most jobs allow for a small period of paid leave, e.g., 3-6 weeks. However, most jobs will provide unpaid job protection for up to 1 year. E.g., you can offer a conditional gift that if one of the spouses in the family wants to stay with the little kid for 1 year, then the gift will help pay for this,
- annual family reunion involving all kids and their families,
- matching contributions to 401k, IRA. E.g., kid puts $18K a year into 401K, and you give them 50% match. With conditions. E.g., if they pull money out, they are forfeiting future gifts in this category,
- early retirement for the kids. This is an achievement too.
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