New York Estate Planning & Elder Law Blog
The current generation of older Americans make up the wealthiest generation this country has ever seen. As the number Baby Boomers (people born between 1946 and 1964) retire or pass on, the United States is expected to see an “inheritance boom” unlike any other in history. At the same time, the generation that stands to inherit this money generally lacks the money management skills to handle these inheritances. But there are some things that the older generation can do to help the younger generation “grow into” its money.
Provide Children And Grandchildren With A Financial Education
Young adults often are launched into adulthood with little or no financial education. In the United States, only four states require students to take a personal finance class in high school. Worse yet, a 2009 study by the University of Arizona and the National Endowment for Financial Education gave students an “F” grade for money management skills. When the study was repeated two and a half years later, students’ money management had declined by an additional 7 percent.
Five money management skills that members of the older generation can help to teach their children and grandchildren include–
1. You sometimes have to wait to buy something you want. Although this is a hard concept to learn, the ability to delay gratification can determine how successful one will be as an adult.
2. You need to make choices about how to spend the money you have. Financial decision-making is a key factor in successful money management as an adult. It is important that children and grandchildren be taught that money is finite and that when money is spent on one thing, it is not available for other another thing.
3. The sooner you start saving, the faster your money can grow. The concept of compounding interest is critical for children and grandchildren who will be inheriting or otherwise receiving family money because they need to learn that saving accrue on the initially received money plus on past interest received from the initial savings.
4. You should pay with credit card (or cards) only if you can pay off the balance in full each month. The average American household has over $15,000 in credit card debt. This, along with average student loan debt which is almost $34,000, threatens to choke most young people. To counter this debt trend, it is important that the older generation help children and grandchildren understand that it is important to budget and use credit cards wisely.
5. You need to know how to budget. Learning to create a budget is a main key to learning to live within one’s means and budgeting techniques are critical for a successful adulthood.
Establish A Trust
One option to slowly ease children or grandchildren into the adult world of personal financial management is through a trust. One form of trust which is sometimes used in the case of inheritance is a “spendthrift trust.” A spendthrift trust can be created for a child or grandchild to limit access to the trust funds. An independent trustee is given full authority to make decisions about how trust funds can be spent for the benefit of the child or grandchild and funds are not under the child’s or grandchild’s control. An additional benefit of the spendthrift trust is that the child or grandchild cannot assign any of his or her present or future income to creditors, or sell his or her rights to the trust principal.
A spendthrift trust can be tailored to the maker’s specific wishes and particular family circumstances. For example, a spendthrift trust can be established for the child’s or grandchild’s lifetime or until he or she reaches an age designated by the maker of the trust. To ensure that family wealth is responsibility passed on to the next generation, it is important to discuss trust specifics with an experienced NY estate planning law firm.