The early years of your life are often spent scrimping and saving, enjoying what fun and indulgences you can. However, if you’re savvy, you keep your eyes fixed firmly on retirement. It comes earlier for some than for others, but all retirees share a common goal: enjoy a hard-won, extended period of relaxation. Another important goal of retirement is to leave money behind for your descendants.
While no one can deny that raising a healthy family and teaching them proper values is preparation for a successful life, people who observe an economy increasingly fraught with hardship want to stack the deck in their family’s favor. For these matriarchs and patriarchs, giving the next generation more financial freedom is crucial in preserving a family legacy.
Expenses like tuition for higher education and mortgage down payments are gradually becoming more unreachable for the younger generations. Many younger individuals are increasingly forced to take on debt for college, and can only rent apartments whereas their parents could afford homes at a similar age. Retirees who witness these trends often look to save as much as they can for their children and grandchildren to defray these costs, even if it means putting their own retirement ambitions on hold.
However, those who earn this money likely care for it more diligently than those who simply inherit it. It might be easy to transfer your savings to your children through a will or estate, but it’s also easy for them to disregard your intentions entirely. This notion is a contributor to the common observation that many have made on family money—that without taking proper care and precautions, it rarely makes it past the inheriting generation.
The common story of family wealth usually sees the second or third generation squander all the money that they inherited from their predecessors. It rarely reaches the fourth generation. Fortunately, this can all be avoided, but the fear of your children wasting their inheritance on cars and vacations is often a self-perpetuating one. Those who watch the nouveau riche spend without restraint are turned off from sharing their finances with their kids because they may be afraid that opening the books will de-incentivize the hard work it takes to establish an independent financial life. This hesitancy is largely a contributor to the problem.
Getting a head start financially may be the difference between a good life and a great one
Smarter families build a system for open communication and work hard to teach their kids the value of a dollar early on. These children will grow up knowing how much sweat went into the money or assets they inherit, and will put in an equal amount to ensure its longevity. They will understand how to budget, save, and spend wisely. Furthermore, they will also know how to manage debt responsibly and, most importantly, how to talk to their own kids about it. Passing on this attitude is key to preserving the wealth that goes along with it, but sometimes, the next generation needs an extra push.
Those who believe in the financial wherewithal of their offspring may still be hesitant to leave money behind, no holds barred. A will is not enough to enforce smart spending rules for your estate as these documents can be easily contested by dissenting family members and even their spouses. In certain cases, a trust is a suitable tool for creating firm guidelines for how the money will be used.
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You can split your estate into pieces for individual family members, create conditional goals for receiving the money (like completing a college degree, taking a finance course, or reaching other milestones such as a certain age), or otherwise get very granular with how it is divided and utilized. A trust is a much stricter tool than a will and requires grantors to put their assets into a fund managed by a trustee. The discipline it requires of its trustees teaches solid financial values and helps to keep the money from being diluted over time.
If you’re considering going the trust route, think long and hard about the assets you’d like to leave behind. While some things are suited for trusts, like real estate, investment accounts, and fine art, savvy individuals will liquidate the assets that aren’t likely to appreciate on the same scale. Non-essential assets like vehicles and diamond jewelry are better off sold, with the proceeds put in the trust to earn interest for the next generation. While it was traditionally difficult for one to sell their precious gems at a fair market price, Worthy makes it easy and safe to auction jewelry and put it to better use.
One of the most important values you can impart on your family is financial intelligence. Getting a head start financially may be the difference between a good life and a great one, so take steps now to get on the same page with your children and grandchildren. Your current diligence may have an enormous impact on the future lives of those beneath you on the family tree.
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