Has you minor child received a sudden influx of money? No matter whether it came from an inheritance, being discovered by Hollywood, or selling their big idea, a child's wealth is the parent's responsibility to maintain until the child can do so themselves. So, how can you manage your child's money so that it benefits them for as long as possible? Here are five steps to take.
1. Use a Trust. Trusts are excellent vehicles for managing a child's income or assets because they establish a separate pool of money. The trustees — usually a parent or parents — then act as a fiduciary. Fiduciaries have the legal responsibility to act in the interests of the beneficiaries of trusts. A trust also helps provide legal and financial protection for both the child and the parent.
2. Work With Pros. As a parent, you probably have many skills and training in your chosen field. But don't expect yourself and your co-parent to be financial experts at the same time. A wealth management advisor will help you learn what you need to know to make good decisions, formulate a financial plan for your little one, and maintain all the documents necessary to be a good fiduciary.
3. Develop Goals. Managing your child's money begins by developing some financial goals. If this is a one-time windfall, such as an inheritance, the goal may be to protect it and make it last as long as possible. However, if the money will likely be an ongoing source of income, like television or music royalties, you may opt to be more assertive about investment with the goal of achieving a steady lifetime income for the child. Both approaches take different routes, so develop them early.
4. Plan for Taxes. Minors — even babies — aren't exempt from taxes, so be sure to include tax planning in your financial strategy. Taxes on a single-year windfall can be particularly egregious, so you may need to develop a tax-reduction plan before the trust or your child takes ownership of the money.
5. Involve the Child. Depending on when your child received the money, you or a co-parent may need to manage their wealth for years on your own. But as they get older, begin involving them in the management process. Find out their goals and interests, then work to make these happen. And help them learn their own management skills by including them in meetings with financial planners.
Want more recommendations on managing your child's assets or income? Begin by meeting with a financial planner who provides wealth management planning services today. With their help, you can start making your child's future brighter tomorrow.
Share30 June 2021
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