Planning for an early inheritance? These are the most important things to leave your kids on good financial footing.
Giving your children an early inheritance is a decision that can be both empowering and complex. It’s a way of providing financial support while you’re still around to witness how it helps them. But like most money matters, there are a few things you need to consider to ensure your generosity benefits them in the best way possible.
Here are the top three things you should know before making that choice:
1. Ensure Financial Stability First
Before you decide to gift a portion of your wealth to your children, it’s essential to make sure your own financial situation is secure. This may sound simple, but many parents rush into giving away assets or money without considering the potential long-term impact on their own retirement or unexpected costs that could arise later in life.
You need to feel confident that your needs will be met as you age. Consider your retirement savings, healthcare costs, and potential future lifestyle changes. Once you’re certain your financial future is secure, you can move ahead with the peace of mind that you’re not risking your own comfort or security.
If you’re unsure where you stand, it’s a good idea to consult a financial adviser who can help you map out your future needs. The last thing you want is to find yourself in financial difficulty after giving your children an early inheritance.
2. Educate and Guide, Don’t Just Gift
One of the most important things to keep in mind when giving an early inheritance is that it should come with guidance. Money is a powerful tool, but without the knowledge to use it effectively, it can quickly become a burden. Offering financial education alongside the inheritance will equip your children with the skills to make sound decisions.
This might include sitting down with them to explain your intentions, discussing their goals, and even introducing them to a financial planner. Helping your children build a strong foundation of financial literacy will enable them to use the money wisely—whether for investments, paying down debts, or saving for their future.
Leaving money without context or guidance could result in poor decisions, so consider it an opportunity to foster smart financial habits that can benefit them for years to come.
3. Think About Fairness and Emotional Impacts
Money can be a source of both joy and conflict in families. When giving an early inheritance, it’s crucial to think about fairness and how it will impact family dynamics. Will all children receive an equal share? Do you plan to give money to them at the same time, or will some children receive it earlier than others? These are key considerations to ensure harmony and transparency among family members.
It’s also worth considering how the inheritance might affect your children emotionally. For some, receiving a large sum of money could be overwhelming, or they may feel an undue sense of responsibility. Open conversations with your children about how the inheritance will work and what expectations you have for them can help avoid misunderstandings or feelings of guilt.
As the cost-of-living crisis continues to strain many Australians, learn these 5 Essential Tips to Help Australians Manage their Personal Finances. And as you enter your silver years, here is How to Avoid the Biggest Money Regrets in Your 50s.
