5 Little Known Ways to Transfer Wealth to Your Kids

Little Known Ways to Transfer Wealth to Your Kids

Building generational wealth can seem like an overwhelming task, especially if you have yet to reach the wealth-building portion of your financial journey.

But what if you could transfer wealth to your kids by putting just a few things into motion? 

Well, you’ve come to the right place. 

Here are 5 little-known ways to transfer wealth to your kids and start the process of building generational wealth.

Utilize Life Insurance to Transfer Wealth

Use Life Insurance to Build Wealth

What if you could guarantee your children would become millionaires? Well, with life insurance, you can do just that by purchasing a term life insurance policy with a death benefit of $1 million. 

You may be thinking, that will cost me a fortune in payments for the premium! Actually, it may not be as much of a financial commitment as you’d think. A person in relatively good health can typically get a policy with a $1 million death benefit for less than $100/month.

But wait, there’s more.

You could always review your benefits plan at work for life insurance offers. Many companies offer life insurance policies at 1x the employee’s salary for little to no charge at all. If you take that route, the only drawback is losing the policy if you left that company.

Ultimately, $1 million doesn’t have to be your number. The point is, there are options to leave your children money, upon your death, that can give them a head-start to building wealth. 

And here’s another little nugget, your kids could get that money tax-free!

Set up a custodial account for your child

Another one of these little known ways to transfer wealth to your kids is with a custodial account. This account can wear many hats, and the benefits can serve many purposes. 

Simply put, a custodial account is an investment account a parent or guardian can open and contribute to that would pay for expenses for their child. 

These expenses can be anything from extracurricular activities to school tuition. The best thing? The money is in your child’s name and can help kickstart wealth-building for them from the day you establish the account.

Here’s how that would work.

Custodial Account Projection
Custodial Account Projection

Imagine being able to turn over almost $80,000 to your 21-year-old as a college graduation present, having contributed $100 per month for 20 years. 

Add your child as an authorized user on your credit card

Suppose you’ve been managing your credit card(s) wisely by paying off balances in full each month, keeping credit utilization rates low, and making monthly payments on time. In that case, you could be in an excellent position to help boost your child’s credit.

Here’s how it works.

You can contact your bank or financial institution and submit a request to add your child as an authorized user on your credit card. You MUST continue practicing good credit card management. If you don’t, you could end up doing more harm than benefit to your child’s credit.

That’s it! 

Remember, you DO NOT have to give access to the card to your child; you’re only doing this to help boost their credit.

Adding your child as an authorized user on your credit card(s) is an effortless way to help your child establish credit early. Building generational wealth isn’t just about leaving your children money; it’s about creating opportunities for them. This process can be a relatively easy, safe, and hassle-free way to start creating those opportunities.

Transfer Wealth to Your Kids

Establish a trust

This strategy of transferring wealth to your kids can get complicated and only effective if you have assets to put into the trust. However, there are many options for a trust that can help transfer wealth, tax-free, to your children. 

If you are fortunate enough to own assets that you would like to see protected and passed down to the next generation, establishing a trust can help you do that.

One benefit of a trust is you can designate rules regarding how you’d like your assets to be distributed. So, if you have a child and don’t entirely trust they will handle your assets properly, you can specify how you would like that child to receive the assets, at what age, and under what circumstances.

Establishing a trust is an essential part of estate planning that should be among your long-term goals when building generational wealth. A trust can be costly and complicated to establish; however, you can potentially receive several benefits that outweigh the costs to protect your assets and transfer wealth to your kids.

Start a home-based business and hire them to do work

This suggestion is quite a bit more involved than the tips mentioned above. However, if you have considered starting a home-based business in the past, this tip is for you.

Did you know the IRS will allow you to hire your child as an employee of your home-based business? Get this, the salary you pay them, up to $12,000, is tax free!

Payments to your child

Details can be found on the IRS website.

There are some limitations to this, but this could work in your favor if done correctly.

If you have a kid who is good at using social media, hire them to be your social media manager. If you have a kid that loves to take pictures, hire them to do your photography and advertising. If you have a kid who likes to be in front of the camera, hire them to be a brand ambassador. And the list goes on.

As always, when managing anything related to taxes, be sure to reach out to your CPA for specific advice on YOUR situation.

The Take-Away

The process of transferring wealth to your kids does not have to be an uphill battle. There are some straightforward and cost-effective ways to get started when they are young. 

Building generational wealth doesn’t mean you have to have millions and millions of dollars to give your children. It’s about establishing long-term investments and creating solutions to financial problems they won’t have to have. 

Using some or all of these tips to transfer wealth to your children will help ground them in financial literacy concepts and set the tone for building generational wealth.

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Krystal Norwood-Morales, MBA, CFEI

Krystal is a Certified Financial Education Instructor and founder of Wild About Wealth, LLC. As a financial literacy advocate, she writes posts geared toward helping others improve their financial education and build generational wealth.

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Krystal Norwood-Morales, MBA, CFEI

Personal finance blogger

As a certified financial education instructor and financial literacy advocate, my mission is to teach young adults how to build generational through financial education. So let’s get WILD about WEALTH!

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