If you have a standard Will and your children are beneficiaries, they will receive their inheritance when they turn 18 years old.
How would your 18 year old self handle your money?
Do you remember what you were like as an 18 year old? If you find it difficult, that might be a reminder of the type of parties you frequented at the time! If you are like me, you were probably just finishing school and starting out at university. You might have had a part time job, but you probably weren’t earning much money. Your head was likely full of the possibilities the road ahead presented to you – opportunities to make your mark and to build the life you imagined. You were eager and excited and you couldn’t wait to get started. But you were likely still innocent of the ways of the world, and pretty naive.
I met with Michael last week who is the trustee for his late brother’s estate. The proceeds from the estate are for Michael’s nephew, who is currently nine years old. Before he died Michael’s brother wrote a new Will which stipulated his son could receive income and capital from the estate for the purposes of his education and development, but that the money would be controlled by Michael until his son’s 25th birthday.
It was interesting talking to Michael about this, and about his own experiences. He told me that his father had also died when he was young, but that it had been quite sudden and there had not been a lot of time for planning. His dad had left a Will but there were no restrictions on it, which meant that Michael inherited his portion of the estate when he reached age 18.
This he said was the worst thing that could have happened to him.
Michael had finished school at 17 and wasn’t really sure of what he wanted to do. He hadn’t done well enough to go to university, and he hadn’t organised himself an apprenticeship or other traineeship. And then he inherited a significant sum of money.
Unfortunately without any significant plans or goals for his life, and without a sufficient appreciation for the value of money he ended up spending much of his inheritance on living expenses and partying. What this also meant was that hard decisions about his future were also delayed, costing him valuable time and experience.
With the perspective of hindsight he would rather the funds were held for him until he reached 25 too, just to give him some more time to grow up and establish himself without this responsibility.
If you have children or grandchildren, or if you have thought about leaving money to a child in the event of your death, thinking about the right way of structuring this gift can make a significant difference to the long term benefits they receive from it.
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