For quite a long time, financial experts like Stephen Pollan have painted an alternative to mainstream views on death and inheritance in his book Die Broke.
The mainstream idea about dying and leaving money for your children is flawed because we now lead incredibly long lives. Our kids may struggle until their 50s before receiving an inheritance windfall. By the time our children reach their 50s, they would be middle-aged, and a lot of personal dynamism would have already faded away, and they may be unable to pick up investment skills that would allow them to thrive throughout their adulthood. Worse, you don’t want your adult kids to actively wait for you to die before they can finally spend your money.
Experts suggest that it is possibly better to make gifts throughout our children’s lives so that they can handle the complexities of modern society better. I am personally familiar with this process, having worked and earned my way to mid-6 digits of net worth and then being privileged to manage my father’s portfolio at a young age after attaining my degree in Finance.
As it turns out, the tactical mindset of handling of five to six-digit portfolio drastically differs from looking after a 7-digit portfolio. With my father’s account, I focused on highly diversified low-beta stocks that consistently spun off money into his bank account (which was not unlike portfolios my students are taught to build). Eventually, my dad’s portfolio outperformed mine because he could spend his days trading tactically with lower stress by staring at his Teletext screen with the proper strategic positioning.
Ironically, while I had a day job, my portfolio did not do as well as my dad’s during most trading hours.
For traditional assets, using the Central Depository is best
An excellent way to start is to create a joint account with CDP when your child is 18 years old. You can find the process of opening a CDP account here.
Once such an account is open, you can begin to transfer stocks from your CDP account at $10 (before GST) to your child’s CDP account, which can be linked to pay dividends into their bank savings accounts.
The advantages of using this approach are to have your child experience receiving investment income at a young age before they get exposed to sexier and more dynamic investment styles when they meet fellow young investors. You are, in essence, preparing your child to handle significant sums of money where downside risks take higher precedence than raw returns. Something that can take decades to cultivate otherwise.
Also, the ability to receive financial reports regularly and invitations to attend AGMs is also an opportunity not to be missed for young students. They will learn to appreciate the importance of maths, accounting and economics at a young age.
For parents thinking deeply about issues with death and probate matters, my personal experience dealing with my father’s passing is that moving stocks from one CDP to another can be fast and involve letters of probate/administration and the same procedure of transferring CDP counters from one counter to each other. My mother was able to receive her dividends in record time, which can be a source of much comfort at an advanced age.
Conclusion
Of course, two conditions must be present for all these ideas to be feasible. Firstly, you must succeed in transmitting the right values to your children. Your children need a baseline amount of conscientiousness to benefit from your guidance, but this is primarily genetic and something your kids need to be born with. Secondly, to guide your children along, you will need to possess the skills and expertise to guide them in the first place, but this is something Dr Wealth can assist you with.
