Personal Finance

I'm 31 with a net worth of $4 million and my grandparents want to give me $5 million - should I have them direct the money to my kids instead?

Kristin Hitchcock

Published: October 22, 2024 7:05 pm

24/7 Wall St. Key Takeaways

• Deciding what to do with a large windfall is never easy. It isn’t just about numbers in many cases. It’s about doing the right thing. 
• Using a large windfall for your own needs doesn’t always feel right, especially if you have a high income. But then what do you do with it?
• Also: Take this quiz to see if you’re on track to retire (Sponsored)

I came across an unusual Reddit post recently. The Redditor was looking at a sizable inheritance sooner rather than later. The poster is 31 and currently has a net worth of $4M and a high household income. They don’t have any children yet, but they do plan on having children within a year or so. 

The poster is a bit concerned about what to do with the money. They don’t want to use it to fund their own retirement, as they’re well on their way to doing that themselves. 

They are considering passing the money directly onto their future child, but they have no idea how many children they’ll have or when. They’re also concerned about what the child will do with the money. 

Here are some ways I’d recommend using the money. Remember, this isn’t financial advice, just my opinion:

1. Set Up a Trust for the Future Child (Or Children)

The poster is understandably worried about their future child receiving $5M at 18. However, setting up a trust could be a solution. 

A trust allows the grandparents to gift the money in a way that provides structure and control over how the funds are used. The money could be allocated for specific purposes if wanted. Many trusts are specified for education, for instance. 

Additionally, the trust can be set up so that the money isn’t received all at once. This could mitigate concerns about responsibility. 

The trust could also be split between all children. This could be done by placing the funds in a family trust to provide some flexibility as the family grows. 

2. Use the Money for Charitable Giving

The poster could use the money for charitable giving instead of giving it to their children. The poster could donate the money to a fund they care about or suggest the grandparents do the same thing. They could also hold the money and then donate it in the name of the grandparents after they pass away. 

This could honor the grandparent’s wishes and make a good impact on the world. 

Just make sure you consider how such a large charitable giving would affect your taxes, especially if you decide to do it instead of the grandparents. We have five essential questions you should ask before making tax-deductible donations. 

3. Keep the Inheritance for Future Needs

The inheritance could also be used as an emergency fund. Life is unexpected. Future healthcare needs, unexpected family expenses, or even the desire to support their children’s education could all be valid reasons to pull from this fund in the future. 

The poster doesn’t need this money right now, but that doesn’t mean they won’t need it in the future. 

This would allow the grandparents to gift the money in the way they’d like to. However, the poster wouldn’t feel like they were misusing the money or taking advantage of the grandparent’s generosity.