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trustfund and inheritance

Financial Literacy Lesson 7 – What Are Trust Funds? What’s Inheritance?

How to Retire Your Child Example 1

For the parents or Soon-To-Be Parents

Here’s your scenario:

Your UNGRATEFUL kid’s retirement. You’re going to invest $13K at birth at 6.5% interest rate compounded monthly UNTIL Retirement Age at 67. Running through those numbers with our calculator (which you can get here), we end up with the number $1,000,442.

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(Be sure to educate yourself on compound interest with our lesson – Financial Literacy Lesson 4 – Compound Interest here)

By doing this, you basically have a million dollar baby. At the time your kid retires, they will have $1,000,442 thanks to your help.

If you want to be a great parent…

This is really difficult for me to write because when I was growing up, I was a nightmare! When I go out to, for example grocery shop, and I see misbehaving kids, I just think…

Man, you really need to beat that kid! They’re a nightmare! It goes over my head as to why parents want to leave their kids so much money – they’ll just be spoiled. But, I digress.

How to Retire Your Child Example 2

Scenario #2:

You still HATE THAT kid, but they’re still your kid. You invest $13K on their 18th birthday at 6.5% interest rate, compounded monthly UNTIL retirement age of 67. For 49 years. Because 67 minus 18 is 49.

But still, whoever gave you a million dollars or have a million dollars for you when you retire? Are you going to have a million dollars because your parents did the right thing? Most of us aren’t in that situation and won’t be in that situation. You can do that for your kid, if you want to.

The reason we do scenario #2 is because we didn’t have $13K when the kid was born. So, what we do is we invest $13K when they are 18 and given the scenario, they will end up with $311,486 by age 67.

It’s not a million dollars, but would you NOT take $311,486 for free?

Exactly.

If you want to do the calculations yourself to make sure I’m not full of it, then you can use our calculator by subscribing to our newsletter here.

Now, let’s get serious here, if your kid grew up all sassy and disrespectful, I would like you to leave them nothing. It’s rather simple, as they don’t desire it. Reward those who are kind and generous and punish those that are just little devils.

IF YOU IMPLEMENTED THIS STRATEGY

HERE’S THE FINANCIAL LESSON YOU MUST FOLLOW.

YOUR KID DIDN’T EARN THAT MONEY. IT’S YOUR INVESTMENT STRATEGY.

BLOW IT BEFORE YOU’RE DEAD!

YOU DESERVE IT!

TAKE YOURSELF TO VEGAS OR HAWAII BECAUSE YOU DESERVE IT!

YOU EARNED IT. YOUR KID DIDN’T EARN IT.

THEY HAVE THEIR OWN HANDS AND LEGS AND CAN APPLY FOR A JOB AND LEARN WHAT YOU LEARNED AND IMPLEMENT IT FOR THEMSELVES.

BUT, IT’S YOUR MONEY BECAUSE YOU DID ALL THE WORK AND YOU SHOULD REAP THE REWARDS.

I DIGRESS… I’M DONE RANTING.

Leaving an Inheritance

Now you know how to leave a HUGE inheritance for your kids.

Which is more likely to happen?

  1. Leave $1 million inheritance
  2. Set aside $13,000 at birth and let it grow
  3. Set aside $2,500 at birth and contribute $250/month for 4 years (this strategy results in the same result as #2)

#1 is not common. A lot of people don’t have $1,000,000 when they die. That’s the unfortunate truth.

#2 and #3 are the most reasonable ways to leave behind a HUGE inheritance (I said it twice). $13,000 is not unreasonable for people to come by in their lives (unless they are horrible with money – which most people are, which is why they should be taking these lessons).

What Are Trust Funds?

How do you not let anyone touch your money?

If you die all of a sudden, how do you make sure that your 5 year old won’t be able to access the money until they turn 18?

Have you read A Series of Unfortunate Events (which is an awesome series and you should get if you have kids)?

If I remember the story correctly, the antagonist, Count Olaf adopted the Baudelaire orphans after their parents died. The eldest sister Violet was to inherit their parents’ fortune after she turned 18. It was a trust fund and the only way for Count Olaf to get his hands on that fortune was if he married Violet and then got rid of her (man, this post took a turn didn’t it?).

So, that’s a fictional example of a trust fund. Pretty rad, eh?

Trust Funds Definition

The purpose of TRUST FUNDS is to hold and protect the money until the requirement (time) is up.

If you leave a trust fund in your will, you can say the money in this fund wouldn’t be accessible until the kid turns 18 or some condition is met.

The Rule of 72 Formula

It’s a Rule of Thumb.

It gives you an idea of how long it takes for money to double, given a fixed annual rate of interest.

For example, given a 4% or 8% interest rate and a $10K loan or investment or whatever, the rule of 72 tells us how long it will take for that $10K to double.

Before we go any further, I want to ask you the question:

What’s the current interest rate on a savings account?

Go fact check me on google or something, you’ll be surprised as I was, but we’re going to leave it here.

As always, hope you learned something good today, and be sure to subscribe to our newsletter!

Also, we got a free book offer that sells on Amazon for $9.99. You can get it for FREE here because you made it to the end of this post!

Donald

Check out the accompanying “Financial Literacy Lesson 7 – What Are Trust Funds? What’s Inheritance?” Video Tutorial

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