When Kids Take Over

At some point, your children will assume responsibility for investing your family’s assets. Their portfolio may take the form of a personal trust owned by the children, or, due to illness or death, the entirety of the family’s invested assets. Regardless of the type or number of assets, children should be prepared to take on this responsibility as soon as possible. Too often, they aren’t, and wealth is lost. Here’s how to ready your kids to preserve and grow the family’s financial legacy.

The Children
Children should be at least in their 30s before beginning to invest family assets.

Making good decisions about family investments requires maturity, experience and judgment, so I think children should be at least in their 30s before beginning to invest family assets. If you have more than one child, their roles should be clearly defined. It’s wise to designate one child—the one with the most financial experience and greatest personal maturity—as the primary decision maker.

Begin preparing children for this role in their late 20s or early 30s, when they’re old enough to appreciate the magnitude of the responsibility. There are benefits to starting even earlier—for example, in case you experience an unexpected event like a stroke or auto accident. But if you start teaching them too soon, they might resent the responsibility.

Transitioning investment decisions to your children should take place over a period of five years or more. This gradual timeline gives the children time to learn. Of course, if there’s a health issue that could affect your ability to mentor your children, you’ll likely want to accelerate the process.

Children’s Responsibilities
It’s critical to communicate your financial expectations to your children. What are the family’s financial goals? What is the risk tolerance? What decisions are they responsible for? What responsibilities can be delegated to third parties? What data do they review and how often?

The Parents
Parents who’ve been controlling the family’s investments for many years might feel wedded to specific strategies— especially if those strategies are based on personal relationships with financial advisors. Don’t pressure your kids into following the same path that you’ve chosen. This transition should be an opportunity to look at all your strategies—and relationships—with a fresh eye.

Third Parties
You probably have a number of professionals involved in your investments: planners, advisors, trustees, custodians, CPAs, lawyers. Your children should meet with them and review the following:

• What services do they provide the family?
• How much do their services cost the family?
• Are there legal documents that govern the relationship?
• How secure is family data?
• What might they do differently in the future?

The children should conduct due diligence on all third parties providing any advice or service. Those reviews should be conducted before relationships are formed and their objectivity is compromised.

Your children should review all the documents that pertain to your assets. If the documents contain language they don’t understand, they should have the documents reviewed by an independent attorney and/or other specialists. And if some of the family’s relationships with professionals are undocumented, documentation should be a requirement going forward. Third parties will be prone to telling your children what they think your kids want to hear. Tell your children to get it in writing— even if you haven’t.

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