A man came in to talk to me last week, and he said that his own parents had made some serious estate planning mistakes. Now in his 40s with children of his own, he wanted to avoid those errors.
I asked him what had happened, and he grinned, looking slightly embarrassed, and told me that he had wasted their money.
The issue is that they left it to him directly. They assumed, as many parents do, that he wouldn't get the money until he was much older. However, due to an unfortunate accident, he got it when he was 18.
Legally, he was an adult, but he had just inherited far more money than he had ever seen before. His parents had left no instructions, so he opted not to go to college and spent the next three years traveling. While he enjoyed it, the money was completely gone after just three years and he then had to take out loans to go to school -- later than his peers -- and get started on his future career.
I advised him that what his parents should have done was to put the money in a trust. That way, they could have left it for a specific purpose -- like tuition -- or at least set an age limit so he wouldn't get the money until he was 25 or 30 years old.
The man's story is all too common. Young teenagers, even though they are technically adults, do not always make the wisest financial decisions. Parents need to understand that and plan accordingly so that their wealth is used in a way that helps the child build a successful future.