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How to tell children about trust fund?

141 replies

notveryhappyhere · 14/02/2021 22:19

So, first of all I know that this is an extremely nice problem to have!

My inlaws are wealthy and have given my 3 children money in trust.(It's in their name so can be accessed by them whenever they like.) It was about £500K a few years ago but has done incredibly well recently and is now around £1m each. It makes me feel a bit sick to write it.

My children are teenagers and have no idea about this money. The eldest is 18 now.

We are quite well off, foreign holidays (when it was a thing), and the children are at private school. We are not flashy though and try to teach them the value of things. My eldest is at university and all of his Uni friends were at state school, he keeps quite quiet about his background and doesn't like us to spend money on him. If it is relevant, we are in Scotland not the SE England so this money is a huge amount.

I've always felt uncomfortable about the money as I worry that it might dent their ambition, send them on a wrong path as I've seen happen to others. It's a huge amount of money, especially to a teenager.

My eldest has really matured of late, but when they were first given this money he was going through a particularly silly stage (aged 14), failing at school and generally being immature which is why I was determined to keep it under wraps at the time.

Before when it was £400k to start with I felt ok about mentioning it to them as they got older, not making a huge deal out of it just 'some money for a flat/house' when you're older. But now it feels a bit of a scary amount to be honest.

Any advice? My husband (who grew up around a lot of money)is pretty relaxed about it all but it stresses me out!

Thanks and if you're going to give me a hard time this isn't the thread. I've had a tough week (death of a friend) and am just looking for advice on how to navigate this (very fortunate) situation that we are in.

OP posts:
notveryhappyhere · 15/02/2021 15:17

@ParentOfOne thanks for that. Good questions. I will discuss with Dh and family.

OP posts:
anniegun · 15/02/2021 15:20

You may need to be careful keeping this financial information from the eldest. There are, potentially, benefits and tax implications that he may have to declare as an adult

notveryhappyhere · 15/02/2021 15:21

@NeedToGetOuttaHere thanks. Yes I suppose because we’re relatively well off anyway I would almost rather they didn’t have the money. I realise how spoilt that makes me sound. I am not at all motivated by money (probably because I’ve always had enough but not too much, I know I’m lucky) My parents were professional middle class (if that’s still a thing), comfortable but not wealthy so this is out of my comfort zone.

I’ve always seen it that they could buy a house and not have to worry about a mortgage but that was when it was £400k

OP posts:
addictedtotheflats · 15/02/2021 15:21

If it were me inheriting that amount of money and I knew I was getting it in my early 20's it think it would have definitely affected my ambition and career path. I would have thought my education didnt really matter because I would be comfortable for life off that amount. Im 32 now and a third of that amount would be 10 years wage for me. Definitely hold off telling them until they have got a career

ParentOfOne · 15/02/2021 15:38

It's a whole scale between the extremes of:

"knowing you have that money kills your drive and makes you lazy"

and

"had you known about that money, you might have chosen a different career path, which is less profitable but which may fulfil you more as a person" .

Without getting into too much detail, one of the reasons I chose not to pursue an academic career was that the pay was too low. Had I had access to that kind of money, I would have certainly reconsidered my decision. Quite banally, I don't have a lavish lifestyle, but I know I wouldn't have been able to buy my current property on an academic salary. With that kind of money it would have been a different story.

Nancydrawn · 15/02/2021 15:40

It's actually great news that some of it is in a discretionary trust and some in a bare trust. It means that your son can't squander the whole thing.

But honestly, OP? It sounds like your kids have a generally healthy attitude towards money, and you should give yourself a bit of credit for that. They don't go without, but they also don't sound spoiled or entitled.

The next step is making sure they're financially literate adults. One of the things I'm most grateful for was a series of conversations I had with my parents when I was about your eldest's age, which were about preparing me to understand basic financial principles. So, for instance, I learned that the most important decade for pension savings was my 20s, because it had the most time to compound (in fact, my parents topped up my pension when I was working my first, very underpaid, nonprofit job, something which I'm still grateful for). I learned the basic ideas about investments, risk, property, estate management, trusts, taxes, etc.

It was done in such a way that I wasn't overwhelmed. All very much "this isn't something for you to worry about now, but it's something you should know about for when you are Grown-Up-in-the-Future-Many-Years-From-Now."

They also told me they'd manage everything for me until I had my feet under me a bit more, which I was so grateful for that it never occurred to me that I could take a chunk of money and blow it.

I absolutely did dumb financial things in my late teens/early 20s, but they were harmless: I bought expensive books when I could have taken them out of the library; I treated my friends to birthday dinners at nice restaurants (and was treated in return); I bought some earrings I fancied even though they were dear. But these were £50 or £100 or maybe £200 mistakes, not £10,000 or £100,000 mistakes. Much more slightly indulgent than Blair Waldorf.

My parents' help wasn't in direct cash but in taking care of things for me. So, for instance, after I graduated university they covered half my rent in the city (I was at that time living in a tiny studio in a safe but slightly gritty neighbourhood, so this was really a nominal amount but meant a lot to me), and as I said, they topped up my pension to maximum nontaxable amounts. They also helped me organize my taxes/the trusts. But I paid my own bills from my own chequebook, my own groceries, my own credit card. I felt like an independent financial actor, and I never for a day expected to be rescued by any inheritances (they all seemed quite a long way off to me).

I will say, in contrast, that my second cousins were spoiled beyond belief by an expectation that they'd never have to work a day in their lives. I'm talking crashing sports cars and immediately getting replacements from their grandparents; not going to university; funding dodgy friends' investment schemes, and each time getting bailed out with family money.

On the other hand, even though I never went without and lived a very generous life, it was always clear that my parents expected me to use my energies to a purpose. We were expected to be ambitious and to be kind. While I was slightly jealous/incredulous at 16 about my cousins' seemingly endless indulgence, I am now mostly really sad about their rootless, aimless lives.

tl;dr: see financial literacy as part of your kids' overall education; keep up the same standards/expectations you always have; make it clear that this money is for later; and do what you can to manage things for them as they figure out who they are.

Oblomov21 · 15/02/2021 15:45

I think you should tell him sooner rather than later. Not the amount though. Because that changes things. Just that :

"grandad and grandma put some money in a trust fund for you, when you were born/young, to put towards something big, you know, like your first house".

ItsIgginningtolooklikelockdown · 15/02/2021 15:50

OP he could easily spend most of that on a fancy flat in Edinburgh, and have enough aside for a pension fund.

BoomyBooms · 15/02/2021 15:52

Agree with the others to tell them it's there but be as vague as possible about how much. Explain its for big important things, but do let them use it to see the world of they have no other way! I have never had enough money to travel and it would be a wonderful experience.

Another suggestion is could you talk to them about jointly investing some of it now? If they each put half into property right away they you would be keeping that chunk safe for them so even if they get to 21 and want to fritter it they can't fritter all of it. And they'd make more money again.

SugarfreeBlitz · 15/02/2021 15:57

Just curious how that affects Student Finance? Or maybe they dont need to apply for it? Surely it needs to be declared for that as it will be earning income?

Maybe that's what the GP left it to them for? Their education I mean. If it wasn't for the legalities around that, I'd make them wait until they'd completed their uni ed.

ParentOfOne · 15/02/2021 15:57

Fully agree on the importance of a financial education.

It makes me cringe to see otherwise very educated persons not understanding, and not caring about, the most basic concepts of personal finance, like how the repayment of a loan/mortgage/works, why you should compare the interest cost, and not just the total instalments you pay, when comparing mortgages, etc.

And don't get me started on how many civil servants and teachers do not understand how their defined-benefit pensions work, and why they are so much better than the defined-contribution ones of the private sector.

AdventureIsWaiting · 15/02/2021 16:06

I’ve always seen it that they could buy a house and not have to worry about a mortgage but that was when it was £400k

I have nothing huge to add, but it could still be treated like this for them - this trust is a one-time deal; if they spend it all or rest on their laurels they won't, for example necessarily be able to give their children the kind of life that you've given them.

I agree that letting them sit down with a good IFA (sorry, no suggestions - I don't come from that kind of background) is a good idea. Other things they might like to think about are pensions (don't assume the state pension will be around, final salary pensions are dying out), not assuming they are going to get any other inheritance from you / family (what if you need care etc.), what if they have children and want to become a SAHP (funding that), do they want to send their kids to private school, what is their ideal career (would one prefer to volunteer, work in a lower-paid but more fulfilling role - I'd love to be a librarian, for example, but we just can't afford for me to do that and restart my career) etc.

It's a really amazing opportunity for them to reflect on how they want to shape their lives and act accordingly. Maybe some kind of counselling as well? I think lottery winners are often given specific counselling to help with sudden unexpected wealth.

Good luck with it all OP. FWIW I think you have done the right thing - over the years my parents (who had very little money) poured all my birthday money, small inheritances from four grandparents and made me save my first wages into an account. I had £16,000 by the time I was 21 and I'd spent it all a year later on a masters degree. I don't regret it, but in hindsight I might have been better off putting a deposit on a house 20 years ago (when houses were cheap!) and taking out a loan for the degree.

hitsvilleuk · 15/02/2021 16:11

We had this although nowhere near that amount. We just told them it was money in trust for something like a flat purchase and they have used it to help with a deposit
We always said it was there but just for something substantial and they didn't touch it at 18

Jobsharenightmare · 15/02/2021 16:12

I am with you on this OP. I'd definitely hold off and work on financial education and drip feeding over time until graduation.

My husband's view is that the money is not really to be spent as such, but invested/spent on property. Kind of in trust for the next generation I suppose. That probably explains his relaxed attitude to it!

^ He is really unrealistic if he thinks that at least one of the children won't blow loads of it in things both of you consider to be a waste at 18. How would he feel if your 18 year old just bought a couple of cars with it and paid for all their friends to have a month trip over the summer to a private island? Your husband needs to accept the younger they're able to access the cash the greater the chance of making poor decisions. Bare in mind the male brain doesn't finish development until mid 20s.

harknesswitch · 15/02/2021 16:39

I'd speak to a financial advisor and maybe stagger the money rather than give it to them in one hit, but even that has its pitfalls.

My friend inherited a fair chunk of money due to her Mum dying quite young. She knew about this from about 13 onwards and it really affected her career choices and work ethic when she got to her late teens. When she started working she really lived beyond her means as she knew she was coming into money when she was 18, she ended up taking her driving test and buying a car when she inherited the first lot as that's all that was left after paying her debts. She did a similar thing up to her 21st birthday when she was due the rest of the money. She would have had enough to buy a nice house but there was practically none left after paying her debts again. She's now in her 30s and I know regrets wasting it all. She's now gone onto uni and done a masters so it was always there, but because she knew she had this money coming she didn't bother. She's in the process of buying her first house as she's managed to save a deposit, but she also knows she could have bought the house outright if she'd been a bit more sensible.

minipie · 15/02/2021 16:42

In theory I agree with telling them in early to mid twenties - when there will start to be some sensible reasons they might need it ie property purchase or further training.

However, I believe they are likely to start to get mail related to the funds in their own name once they turn 18. How are you going to handle that? Intercept the mail...?

Because of this, I think you need to drip feed ready for a reveal at 18 (unfortunately), but also make it clear that the grandparents intend it to be used for a substantial purpose - as your DH clearly believes - rather than frittered.

GordonsAliveAndEatsPies · 15/02/2021 17:20

My parents put money aside for me using stocks and shares isa’s and property.

DPs took it stage by stage so that I learned more about why I would not want to piss it up against the wall first (guiding me around how it could be used for income in the future, why you don’t dig into capital value and how reassuring it can be to have no house debt). That way when I took over (aged about 25) they could be at least feel reassured it was as safe as possible. They also told me (and would very much stick to the principle) that if I did fuck up that I would fool them once, not twice and nothing else would come my way afterwards. A motive to keep straight if ever there was one.

It also gave me confidence that if done right we could (and we have) apply exactly the same principles and wealth division with our own kids.

Canitbemagic · 15/02/2021 17:28

3 siblings were given a million each at 21. All 3 are now penniless in the 40s. One blew it on holidays and cars. One got majorly into drugs. One married and husband took half and then it spiralled. I would do the trust so it could only be invested in property or something and that any potential spouse would not get half.

My great aunt tied all their money up on trust. They could buy one house up to a certain amount and bills were covered and private schools for the gran kids etc and then the same for grandchildren and on when they reached 25. The gran children now have children and all of them have nice houses and good education.

BasiliskStare · 15/02/2021 18:22

@notveryhappyhere So one thing I would just say is that - your parents in law may have payed all tax . Tax things changes so just check it is £1m net to DCs or DCs will have to pay more tax ( which will still leave a huge amount still to them both - but just check ) & then if I am honest I would let them know and try to say how to spend it best , and if they don't , well , there you go.

RedHelenB · 16/02/2021 07:41

Surely if there are no stings attached you have to tell them and give them the paperwork when they reach the legal age of an adult ie 18?

Greenevalley · 16/02/2021 07:55

I'm surprised that you got your ds to sign a tax return without encouraging him to read and understand it.
OK so you're his parents but thats a bad precedent to set.

picknmix1984 · 16/02/2021 08:01

It's only the cost of a mid terrace in South London perhaps you are overthinking it op.

MsSquiz · 16/02/2021 08:02

I haven't RTFT but we have started an ISA for DD (DH's family is extremely wealthy so as well as the ISA, she stands to inherit a lot more down the line)
The financial advisors we speak to, who hold our funds for investment & DD's ISA advised that the provide financial "education" to teenagers in this position. To help them understand the money they have, how to use it wisely rather than blow it all out of excitement.

LarryUnderwood · 16/02/2021 08:03

I know a few people who inherited money in their teens/early 20s. All of them behaved irresponsibly and one in particular spent his entire 20s knobbing around because he didn't have to work. The crash in 2008 put paid to that but he really struggled with confidence because he'd never had a proper job. I'd keep it under wraps until they're in their mid 20s earliest. To be honest I'd keep it under wraps till they were 30 as it doesn't sound like they will be poverty stricken anyway!

sleepyhead1980 · 16/02/2021 08:06

Wait as long as possible! I came into some money when I was younger and blew it all on designer clothes and first class holidays. Only now as a 30 something with kids do I understand the value of money. Give it as a gift when they tell you they are expecting a baby. Also, money attracts the wrong partners and friends. You will be doing them a huge favour to wait as long as possible.