In this piece, we will be presenting 12 Best Ways To Leave Money To A Child. If you want to skip detailed analysis of Estate Planning sector, you can go directly to 5 Best Ways To Leave Money To A Child.
Estate planning has been a practice since ancient times, with examples dating back to ancient Greece and Rome. Then, documents were used to ensure proper inheritance, typically favouring male heirs. The process involved witnesses, signatures, and the creator being of sound mind. Throughout history, various societies have had their own versions of inheritance laws, including references in ancient religious texts.
However, in more recent history, the right to estate planning was reserved for a privileged elite, denying access to minority groups like Black, Indigenous, and People of Color (BIPOC). Even after legal changes, many communities still lack easy access to education about estate planning. It is essential for underserved populations to have equal opportunities for creating estate plans to protect themselves and their families. Contrary to common belief, estate planning is not just for the wealthy and well-defined group of society but is important for everyone.
As of 2024, only 32% of Americans has a will, marking a 6% decline compared to 2023, the first drop in estate planning rates since 2020. The survey by Caring.com revealed that 40% of individuals without a will cited insufficient assets as the reason. Notably, lower-income Americans were twice as likely to mention this, reflecting the disproportionate impact of the economic situation on their decision-making regarding estate planning.
Income inequality has played a significant role in estate planning trends, with lower-income households experiencing more vulnerability to inflation and economic challenges. The decrease in estate planning rates is evident across different demographic groups, but young adults aged 18-34 are the only age group that has not experienced a decline since 2020. It is crucial to emphasize that estate planning is essential for everyone, not just the wealthy. Despite 64% of Americans acknowledging the importance of having a will, only 32% have one. This underscores the need for increased awareness and access to estate planning resources for all individuals, regardless of their financial circumstances.
The Trusts and Estates sector deals with managing trusts, estates, and agency accounts according to fiduciary agreements for beneficiaries. Revenue in this industry has seen a steady increase over the past five years, mainly driven by gains from assets held in trusts and regular dividends. The industry has benefited from strong performances in equity markets and housing price appreciation during this period. From 2018 to 2023, the industry's revenue has grown at an average annual rate of 2.8%, reaching $221.4 billion, with a projected 4.2% increase in 2023, as per IBIS World. However, we can't guarantee the accuracy of these figures.
In the world of estate planning, along with financial and investment planning, it’s essential to look up various big players in the industry, namely, Morgan Stanley (NYSE:MS), Goldman Sachs Group, Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM). Hence, before we jump on to discussing 12 Best Ways To Leave Money To A Child, let’s have a look at these companies.
Morgan Stanley offers a versatile third-party corporate trustee program. Their estate planning services include a comprehensive suite of fiduciary and trust administration solutions. They conduct thorough due diligence on corporate trustee partners to ensure quality service. Clients can access a variety of discretionary options for trust investment management with a disciplined investment approach.
Additionally, clients benefit from the global resources and expertise of Morgan Stanley's investment professionals. Lastly, personalized local service and support are provided by Financial Advisors and Trust Specialists to cater to individual needs.
Morgan Stanley (NYSE: MS) achieved net revenues of $12.9 billion in the fourth quarter ending on December 31, 2023, slightly higher than the $12.7 billion reported the previous year. The net income applicable to Morgan Stanley was $1.5 billion, equating to $0.85 per diluted share, compared to $2.2 billion, or $1.26 per diluted share, in the corresponding period the previous year.
Goldman Sachs' private wealth advisors provide clients with unparalleled resources, access, and guidance to help them maximize their impact and wealth. Each advisor is dedicated to understanding the client's goals and values and curates Goldman Sachs' offerings accordingly. Services include investment advice using a time-tested approach for managing risk and constructing customized portfolios, as well as long-term strategies for trust and estate planning. Clients can request a meeting with Goldman Sachs to explore how these services can assist them in achieving their financial objectives.
Goldman Sachs Group, Inc. (NYSE: GS) released its financial results for the year ended December 31, 2023, reporting net revenues of $46.25 billion and net earnings of $8.52 billion. In the fourth quarter of 2023, net revenues were $11.32 billion, with net earnings totaling $2.01 billion. The diluted earnings per common share for 2023 stood at $22.87, while for the fourth quarter of 2023, it was $5.48. The return on average common shareholders’ equity was 7.5% for the full year 2023 and an annualized 7.1% for the fourth quarter of 2023.
JPMorgan Chase & Co. (NYSE:JPM) offers personalized estate planning services to help clients achieve their financial goals and ensure their assets are distributed according to their wishes. Their team works closely with clients to evaluate and implement strategies that align with their objectives, whether it involves passing wealth to beneficiaries, caring for loved ones, or supporting charitable causes. By providing guidance on tax-efficient gifting strategies and updating essential documents, such as wills and powers of attorney, J.P. Morgan ensures that clients' estate plans stay current and reflective of their evolving wishes. Clients can engage with J.P. Morgan to create and implement effective estate planning strategies tailored to their unique needs and circumstances.
For the quarter ending 31 December 2023, J.P. Morgan reported a 15% decrease in quarterly earnings to $9.31 billion, equivalent to $3.04 per share, compared to the previous year. Adjusted for the fee related to the regional banking crisis and $743 million in investment losses, earnings would have been $3.97 per share, as disclosed by JPMorgan. Revenue increased by 12% to $39.94 billion, slightly surpassing analysts’ projections.
12 Best Ways To Leave Money To A Child
A real estate broker pointing to a house model, with the caption 'Real Estate-backed Loans Available.'.
Methodology
To come up with our list of Best Ways To Leave Money To A Child, we conducted an extensive research, relying on various sources to finalize our list. The sources used are namely, Srllp, Vaelderlaw, Wealthify, Due, and Kiplinger. We've ranked the list on discretion.
With his, let us now head on towards our list of 12 Best Ways To Leave Money To A Child.
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12. Business
12th one our list of Best Ways To Leave Money To A Child is family business, which is a common asset passed down to children as an inheritance, often with monetary value and a stable income source. This can provide financial security for them in the long term. However, businesses can be unpredictable and may fail if not managed effectively. It's crucial to ensure the business is financially sound and profitable when passing it down. Teaching children how to run the business early on can prepare them for potential future responsibilities.
11. Annuity
An annuity is a valuable asset to leave for children, offering stable income and potential tax advantages, particularly with non-qualified annuities funded with after-tax funds. By annuitizing the annuity, children can convert it into a reliable income source to cover living expenses for a specified period or lifetime. An annuity helps manage the risk of outliving savings or market downturns. While it provides a stream of income, annuities may have limitations in flexibility and liquidity.
10. Real Estate
Real estate assets, acquired through hard work, can be a valuable inheritance for children, offering financial security and potential growth over time. In addition to safeguarding retirement funds, real estate properties with shared memories can create sentimental value for the heirs. Real estate is a safe investment with potential for growth and can provide financial security for children. However, it may come with maintenance costs and management responsibilities for beneficiaries.
9. Brokerage Account
A brokerage account, containing stocks and bonds, offers a valuable non-cash financial inheritance that can grow in value over time. These accounts allow for active trading before being transferred to children, who can benefit from the rising asset value gradually. One advantage of brokerage accounts is their divisibility, making it simple to distribute the assets among multiple children. Moreover, stocks are easily liquidated, providing access to cash when needed through the brokerage account.
8. House in a Trust
Placing a house into a trust offers several benefits, including asset protection against potential risks like creditors, avoidance of probate for a quicker transfer to beneficiaries, potential tax advantages, and the ability for the settlor to maintain control over asset management. However, there are drawbacks to consider, such as the associated costs of establishing and maintaining a trust, the loss of control once the house is in the trust, the complexity of trust management, and limited flexibility with irrevocable trusts.
7. Spendthrift Trust
A spendthrift trust is a type of trust that restricts a beneficiary's access to trust assets based on conditions established by the grantor. This trust structure helps prevent beneficiaries from mismanaging their inheritance and safeguards trust assets from creditors. By disbursing funds incrementally rather than as a lump sum, a spendthrift trust can be beneficial if the beneficiary lacks financial maturity, tends to make impulsive decisions, is in significant debt, vulnerable to deceit, struggling with addiction, has special needs and receives government benefits, facing or anticipating divorce, or works in a litigious industry where asset protection is crucial. The pros of a spendthrift trust include protection from creditors targeting trust assets and a controlled distribution of funds over time.
6. UTMA/UGMA Accounts
UTMA/UGMA accounts, or Uniform Transfers to Minors/Uniform Gift to Minors accounts are placed 6th on our list of Best Ways To Leave Money To A Child. They are custodial arrangements that allow gifts to be held for minors who cannot own substantial assets themselves. These accounts enable a designated individual, possibly the donor, to manage the gifted funds until the minor reaches legal age, typically 18 or 21, depending on state laws.
Setting up a UTMA/UGMA account is a straightforward process usually done through a local bank branch. However, the funds in the account are taxable to the child, and some investments may trigger tax consequences, potentially subjecting the child to higher tax rates. Consulting with an estate planning attorney is advisable to assess the implications. One concern with UTMA/UGMA accounts is that when the minor reaches the designated age, typically 18 or 21, they gain control of the account and can use the funds as they wish.
