Making a financial gift to your child
In passing wealth to the next generation, there are two main aspects to consider: firstly, a good education to enable children to take responsible decisions, and secondly, a well-thought structure when transferring your wealth, in order to protect your wealth and your children in the long term.
Educating your children on wealth, and the value of money, should take place over a number of years (rather than via an internet search!). In most cases, appropriate opportunities arise during usual family discussions, but sometimes adding some structure to those discussions can help. For example, you could:
- encourage them to attend a financial education programme, often provided by private banks
- let them manage their own portfolio – and have them own the consequences
- let them meet the family advisors to explain the financial arrangements, potentially including any wealth structures in place such as trusts
- depending on your jurisdiction, you could set up a family charitable trust with family members as trustees who are responsible for grant making decision
The education process for each family is different, but the aim is that by the time substantial gifts are made, your children are ready to take on the responsibility that wealth brings.
Your country of residence – and its laws and regulations – will play a key role in how you transfer your wealth to the next generation, and seeking professional guidance is always recommended. Nevertheless, here are some options that may work for you and your family depending on your jurisdiction:
- Outright – the simplest option in principle, and a core part of any planning to pass assets down and reduce your estate. This could be a cash gift, specific assets or as part of a wider education piece, setting up an investment portfolio.
- Joint account signatories – a joint account between you and a child can pass assets whilst allowing you to retain a degree of control. It would be the child’s account, but they would need your signature to access the funds. This approach could be extended to be used for jointly held properties, with the aim of allowing a gradual transfer of value and control.
- Loans – for more substantial transfers, a loan (perhaps to buy a house) can be a useful (and low risk) way of starting a transfer. If everything works out fine, it can always be released a few years later. Interest and security provisions can be useful depending on the circumstances.
- Illiquid assets – an illiquid fund, or fixed term bond in your child’s name, could be an option. Your child would have the value, but may not be able to access it for some years. Potentially, it could be slowly realised and turned into a more liquid portfolio. Life insurance solutions could be another option.
- Trusts – a wealth structure valid in multiple jurisdictions around the world that holds family assets, or business interest, for future generations.
- Will – allows you to appoint individuals (e.g. executors or trustees, depending on your jurisdiction) to collect in your assets, pay liabilities (e.g. tax), and then make distributions. In many cases, a will would include the creation of a trust to hold and control the assets, along with guidance under a Letter of Wishes explaining how you would like your assets to be passed following your death (which could be many years after your death).
In the long term, wealth transfer encompasses a combination of education, lifetime gifting, and a mechanism to control and pass on financial and business interests after your death. Getting it right can help to encourage, nurture and support the family in the long term. Getting it wrong can lead to unnecessary costs and long-term family disharmony.
What matters to you?
Life, business, investments, aspirations - what matters to you matters to us. This article is part of our ’What matters to you?’ series, in which we have a close look at what lies close to your heart and how wealth planning may help you to achieve your objectives.
About the author
Damian Bloom is Global Co-Head of Private Client at Bryan Cave Leighton Paisner, a trusted partner of Julius Baer’s open product and service platform. Damian has more than 20 years’ experience advising high and ultra-high-net-worth clients and families, focusing on tax, trust and estate planning.