Protecting Family Wealth Means Allowing Your Kids to Get Involved — and Letting Them Make Some Mistakes. Here's Why
Don't put off money conversations with your heirs until the last minute. Financial education needs to start early, with hands-on opportunities to learn and make mistakes.
Editor's note: This article is the first in a three-part series on the benefits of taking a more thoughtful and proactive approach to financial planning.
For decades, wealth planning has revolved around obvious life milestones, such as marriage, birth, retirement and death. These moments trigger conversations, necessitate action and carry a sense of urgency.
But the most complex planning challenges rarely begin with these milestones. In fact, they begin in the quieter moments well before the event takes place. I would even argue that these milestones are often the period at the end of a sentence, as opposed to the start of one.
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This three-part series focuses on those quieter moments — the transitions that happen gradually, often without a clear starting point, and have lasting consequences if they are not addressed early. The first of these moments is when children transition into adulthood and become financially aware.
The knowledge problem
Many families treat wealth education as something that begins at the time of an asset transfer. Often, real conversations only happen when a significant monetary event is about to occur, such as the termination of an UGMA account, a distribution from a trust, or an unexpected inheritance.
By that point, families are often trying to rush a single conversation about wealth that should have been done gradually.
Meanwhile, children often create their own narrative in the absence of knowledge. They may assume that the existence of wealth means future financial guarantees. The opposite can also be true: They may develop resentment for well-meaning parents who worry that wealth will spoil them.
In the absence of communication and guidance, children fill in their own blank space with what they think they know. Once those expectations and sentiments harden, they can be difficult to change.
Unfortunately, many young adults have never had the chance to practice decision-making around money in a meaningful way. We often say we want the next generation to be responsible, but responsibility is not taught through one conversation or one podcast — it is learned and developed over time.
Responsibility comes from exposure, repetition and the chance to make choices while the consequences are still manageable. It also includes making mistakes when the stakes are low and parents are still around to help course-adjust if necessary.
Learning by doing
Families can begin by giving the next generation something concrete to engage with —something small but real. That can mean involving children in the discussion around family philanthropy, where they can learn to evaluate causes, priorities and trade-offs.
A donor-advised fund can be a particularly useful training ground for both financial management and philanthropy.
Alternatively, it might mean letting them sit in on an investment review meeting with the family adviser, so they can see how decisions are discussed and made. It may make sense to include a child as a non-voting participant in the next family investment.
Other families may prefer to give children a small sum of money to manage, not necessarily to seek a certain return, but for the experience itself.
A simple investment account that the child can access with an app can be a good way to learn about investing and the markets.
All these experiences create meaningful opportunities to learn by doing.
The family trust
In the right circumstances, an adult child may even serve as a co-trustee of a trust alongside a more experienced individual or institution. All these create meaningful opportunities to learn by doing.
A trust can be more dynamic than people assume. Historically, many families thought of a trust as a static legal vehicle. It held assets, imposed guardrails and produced distributions. Increasingly, families are recognizing that a trust can do more. It can also support development.
If drafted thoughtfully, a trust can create structure around the use of funds for purposes the grantor values, such as education, entrepreneurship or the purchase of a first home.
It can also create a framework where a beneficiary becomes familiar with the process, accountability and responsibility over this stewardship of wealth.
Depending on the structure of the trust, the beneficiaries may include future generations. The trust then becomes not just a wealth transfer tool, but a teaching tool for a family legacy.
However, a lack of understanding of roles and responsibilities within a trust structure can lead to surprises.
For example, beneficiaries are often surprised by how much discretion a trustee actually has, and the conditions attached to the assets imposed by the grantor in the trust agreement. They often also lack the appreciation of the fiduciary responsibility that a trustee has.
This is why families need to talk not only about the "what," but also about the "who" and the "how."
- Who will play what role in the family structure?
- How will decisions be made?
- How should a beneficiary think about access versus ownership?
- If one child is expected to take on more responsibility, is that because of geography, expertise, availability or family dynamics?
If not explained, role assignments can easily be misinterpreted as judgments about love, trust or fairness.
Advisers have an important role to play here as well. Information is more accessible than ever, but information is not the same as understanding or judgment.
Families do not just need someone to explain what a trust is — they need someone who can help translate the purpose of a structure, think through the behavioral implications, and coordinate the legal, fiduciary and educational aspects of the plan.
In many cases, the adviser also serves as a neutral voice, helping parents discuss difficult topics with children in a way that is objective.
Shaping the next generation
A child's transition from financial dependence to awareness does not show up in a single defining moment. It is one of the hardest shifts a family will navigate. Every child is different, even within the same family.
By the time assets actually change hands, the mindset, habits and expectations of the next generation are already taking shape. Getting ahead of this early, and adopting a "growth mindset" on the parents' part is critical — some conversation, even if not perfect, is better than no conversation at all.
In the next article, I will turn to another quiet transition: The period when parents are still healthy, but planning for old age has not yet begun. Like this transition, it is far easier to address before it becomes urgent.
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