How can I protect my son from a large inheritance at 18?

[Awkward718]

NC for this as it’s quite a sensitive issue.

My DM is in her 80’s and I have a pre-school age DS.

My DM has told me that she has written in her will that she is going to split her assets between her 3 children, me and 2 siblings, however my share will go direct to my DS as she considers DH and I to be financially secure and not in any need. My 2 siblings have no DC of their own.

The amount my DS will receive is likely be somewhere around 300k-400k.

I have no direct need for the money so am not at all bothered that it is being left for his benefit however I do have a huge concern that handing such a significant lump sum to my DS at 18 could have catastrophic consequences for him. He’s far too young at the moment to know whether he’ll be a responsible 18 year old or someone who could ruin their life if handed such an amount at a relatively young age with no restrictions.

Is there anything I can do to alleviate the risk? DM is adamant she’s doing a really nice thing for DS so won’t entertain changing her plans despite me highlighting the obvious risks.

Can an inheritance handed to a child for them to receive at 18 be deviated or not? I suspect it can’t. If so what other options are open to me as I don’t want to live through his teenager years terrified that he’s going to be handed what will then be a huge sum after investment growth on his 18th birthday.

If it can’t be deviated could we do something such as invest in joint assets with him as a child where both parties have to agree to a sale?

Failing that are there any other options? I’d honestly rather not have anything going to him than have this arrangement in place. He’s an only child so will inherit plenty from DH and I at a relatively early age anyway as we are both older parents.

This is a good question. It's well known that many 18 YOs will squander huge amounts of money on not very much, that they later regret and could well negatively affect them for life. Therefore it's an odd stipulation from anyone significantly older so has life experience that will show them that this can be an unwise move.

Could you try and persuade her that he can have 10% of the money to do what he wants with at 18 on the proviso that he receives financial planning advise to wisely deal with the other 90%?

Could you ask her to leave portions to bece
available at different ages? A small amount at 18, slightly more at 21 and then release the rest at 25?

Reading your update OP, I think the best and only thing you can do is do your best to raise a son with a good work ethic and understanding of financial matters. Don't let him know about potential inheritances until he is much older (it sounds like your parents could feasibly pass away before he turns 18 so presumably you’d be responsible for it till then).

Otherwise, put it out of your mind for now. Lots of things could happen - care home fees, illness, unemployment, economic changes etc. between now and when you, your siblings and parents pass away. But do remember, even if he inherits a large sum at 18 and blows it, worse things happen at sea!

Can you use that money for education prior? Usually this is written into the will. Also what happens if you have further dc?

@Awkward718

my dc are in a similar situation, beneficiaries of multiple people though as I had them in my 20’s as my parents did me they are adults now and yet to benefit. My parents have sensibly stated that the first thing I as executor need to do for their share when distributing is pay off their student loans as one is more sensible than the other (one has married into money, other has great job but likes their “stuff”

Because too much money at a young age can do the opposite of what you think. It can stifle ambition and hunger for success.

and whatever you now think you would have done, you certainly would not have done what you at your current age and wisdom would think you would have done

This seems extremely sensible to me.

Interested to know if the ISA money was in s&s or cash. Or did you move it from one to the other? We’ve similarly invested the original gov child trust money plus a few gifts, into a tracker fund isa for our kids. One will be 18 next year and because the stock markets have done well, a relatively small amount has grown to about £20k. But then if she needs it for uni she’ll obviously need to convert it to cash. I suppose she can convert some of it if needed and hopefully leave some invested.

I had it in a cash ISA ; got about £16k in interest in total. But I was very new to investing when I set it up initially (since then I've started to do a lot of trading on the stock market); if I did it now I'd do a s&s ISA...which in theory should give a higher ruturn but with the current madman running the world anything is possible

DM gave quite a lot of money to my DC but through a trust. However trusts are expensive and complicated. You know your son, but I would sit him down and explain to him that it’s best to invest it wisely or buy a property and it will help set him up for life and it’s not in his interests to blow it all. ( except perhaps a small sum on a great holiday).

I totally understand, my children have a substantial trust (many millions) but this does not pay until they are 25. From 18 they can apply to the trustees for essential expenses (basically paying university etc) would that be a possibility?

It’s a long time until he reaches 18. How will he find out about it? A million different things can happen between now and then. I think you’re worrying a bit too much at present. Hardly a burden!!

I totally get your concern. I have 3 DC between 23 and 27. One of them probably would have handled this at 18 and definitely would now. The other 2 wouldn't then and wouldn't now. It would absolutely get blown on total shit and I'd have no control to stop it. I'd be furious at DM in your shoes.

Your mother needs proper financial advice? Best option is to put it in a trust with you as a trustee from a tax perspective too. Putting it in a trust now might safeguard it (e.g. inheritance tax) and might be better to pay capital gains? Work it out.

lastly: Why would she not trust you have your child’s best interest?

Because too much money at a young age can do the opposite of what you think. It can stifle ambition and hunger for success

I think this is true for very large sums but not for £400k- it's not enough not to have to make your own way. If anything, it could be the thing that allows him to pursue his ambitions rather than play it safe- enough to do anything, not enough to do nothing.

OP, I think education is the best option. There are plenty of 18yos who would be absolutely fine with money like this and also quite a few 25yos who would squander it, so delaying things doesn't necessarily solve the issue.

Also if you are trustee until he's 18, you're not obliged to keep all the money in cash- in fact you shouldn't. You could (for example) buy a house and invest the net rental income. Then when your son reaches 18 he'll have the invested rental income as well as the house, plus an income stream going forwards to cover eg uni costs. Of course he could choose to sell the house but it adds quite a lot of friction and time and hassle, so not something he could do overnight and he may not want to if he has the rental income. You'd need to be sure that this would be in his best interests in order for it not to be a breach of trust and I'd probably want to take legal advice.

Also if you are trustee until he's 18, you're not obliged to keep all the money in cash- in fact you shouldn't. You could (for example) buy a house and invest the net rental income. Then when your son reaches 18 he'll have the invested rental income as well as the house, plus an income stream going forwards to cover eg uni costs.

This is a very good point. Tactically it could be a good move because you’re right a teenage boy might not want the hassle of selling, far easier to take the passive income. The only downside is that returns on property are not currently what they have been, and from that perspective a diverse portfolio might outperform that. However if it keeps him from staffing it up the wall it’s a plus.

Equally, 400k doesn’t buy a house in large areas of the country - in London it’s a small flat, which has the plus of being less maintenance and less intimidating in terms of upkeep. A London flat would maximise the rental yield and provide DS a choice of several different universities rent free.

I'm in a similar situation OP; my parents generously invested for my kids. Now my son is 18 he has full access to a fund of about £150k. It makes me worry as he should learn how to budget and make ends meet on not very much as we all did. I told him (having agreed with my dad first) that the money is only to be used for property or education. He seems fine with it! In fact he is saving up to buy the latest phone from his uni money, he has not spoken about using his fund for that.

I would also share your view said as someone who did indeed fritter an inheritance (albeit considerably less) at 18. If you can’t persuade her to put it in a trust which would be by far the most sensible , then before your son turns 18 I would start conversations and planning with him about how he can best utilise this money to his immediate advantage & long-term investment. You really need to get him on board with this as he is well within his rights to withdraw the lot and spend it on a massive blowout weekend if he really wanted

I would definitely agree a lump sum he can draw down on to spend on a car, year out some spending bit of fun money so he doesn’t resent the control and rebel. Use it to pay for uni if loans are still costing as much. Explain the benefits of things like a LISA and even relatively small sums invested in pensions with compound interest. Beyond that, I’d be hand-holding & heavily guiding him to invest into a a couple of funds intended for different life stages so something with a 5-7 year maturity for property purchase then a longer-term plan plus some sort of buffer /shorter notice more stable account.

It would be down to you to educate him regarding money, there’s a book called ‘seven generates legacy’ (it’s for wealthy families really wanting to pass on inheritance, & it has some great explanations of how to raise children around money)
If some of it could go into a SIPP / or ISA it would give him an amazing start at an early retirement!

My older DS is autistic, though he lives independently and holds down a job. He is 47 now and still has not figured out how to save money or not spend any extra money impulsively. He only has a roof over his head (I live in another country where he would not be able to go and live with me even if he wanted to) because a friend needs somebody to share the rent, and his friend charges him enough for a share of the rent and bills and his friend takes care of paying the bills. When he lived on his own, I spent thousands digging him out of various financial holes he got into (not paying bills, not paying council tax, not having enough money to pay the rent) and even then at one point he spent six months living in a van he owned at the time. I have left his share of my children's inheritance from me in a trust controlled by his brother and sister, whom I absolutely trust to make sure he uses it sensibly for his own benefit. I absolutely know that if he had full control of it, it would all be spent within a year or two and then he would have no Bank of Mum to draw on. His siblings certainly won't want to support him.