At Milestone, I have heard the concerns of many parents who have had to plan for a substantial settlement for their son or daughter. One of the primary issues they face, of course, is the unlimited access their child would have to the settlement recovery before he or she is able to maturely handle it.
Wasteful spending is worrisome for any parent whose child is about to receive a large sum of money. While the settlement recovery does technically belong to the child, few teens and young adults can manage a sudden financial influx of this caliber. There are also other significant risks involved with handing over access to tens or hundreds of thousands of dollars — risks that go beyond the child making poor decisions. There are concerns about drugs, friends with influence over the child, and the implications in friendship circles for someone who has lots of money at an early age.
After sitting down with parents and working out their concerns about their child’s settlement, I have found the following to be their main priorities:
- The child does not receive all of the money at age 18.
- The money will be safeguarded and achieves a modest return.
- The money will be made available in amounts that increase with the child’s maturity.
- The parents will have the ability to positively influence the child’s decisions and financial risk taking into their 20s.
- The child is not discouraged from pursuing education and/or employment due to his or her access to the money.
- There will be a correlation between the child’s maturity and receipt of some of the money.
Spreading out access to the settlement over time is therefore most often in the child’s best interest. In a 2014 post, I broke down some basic guidelines for money management for a child who has obtained a settlement. Here’s a summary of my suggestions:
Provide a small amount of money at 18: The child should be able to access a small amount of money, perhaps less than 10 percent of the settlement recovery, in order to have the opportunity to begin making financial decisions and mistakes without risking the entirety of their money.
Give more access to the money at ages 23 to 24: A trust or a periodic payment obligation could slowly filter in more of the assets. The child will learn how to budget, and by then, he or she will likely have expenses that have accrued from college and young adult life.
Provide the balance after age 25: A 10-year plan from ages 25-35 allows the child time to learn about investing, what to look for in a trustworthy advisor, and allows the parent to stay involved for a bit longer. One way to provide the balance is with a plan of monthly or quarterly payments that will roll to a traditional investment account.
Rarely is there a huge chunk of money available in one’s life, and people can generally make better decisions with smaller sums. Taking steps before receiving a settlement will result in a better experience for parents and their children.
About John Bair
John Bair has guided thousands of plaintiffs through the settlement process as co-founder of Milestone Consulting, LLC, a broad-based settlement planning and management firm. Milestone’s approach is comprehensive and future-focused. John’s team has guided thousands of clients by taking the time to understand the complexities of each case. They assess the best outcome and find the path that enables each client to manage their many needs. Read more about Milestone Consulting at http://milestoneseventh.com/.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).