Personal Finance

I'm in my 40s with $10 million in net worth and I want to change our kids trust fund - is this smart move?

Marc Guberti

Published: January 24, 2025 1:37 pm

A Redditor in their early 40s has amassed a $10 million net worth and wants to set up trusts for their four children. However, the Redditor doesn’t like the idea of their children receiving a lump sum when they turn 25.

Instead of a few lump sum payments, the Redditor wants them to give them a few thousand dollars each quarter. Is this a good move? I’ll share my thoughts, but it is always good to speak with a financial advisor.

Annual Withdrawals Based on Percentages Can Preserve the Portfolio

One commenter suggested allowing the children to withdraw 5% of the trust each year. It’s similar to the 4% withdrawal rule that many people use to live off their retirement portfolios.

This approach gives the children plenty of annual income to live on, but it also preserves the portfolio. If the trust has good investments, it can achieve a return that’s higher than 5% per year. This approach allows the children to receive distributions while the trust grows.

Wait for the Children to Become Adults Before Setting Up Trusts

The Redditor expressed skepticism about having someone else manage the trust until the children become adults. It’s possible that a portfolio manager makes mistakes with the trust. Some managers even engage in fraudulent behavior and steal the funds in the trust. 

While those scenarios are rare, they present enough of a risk, especially when a $10 million net worth is at stake. One commenter said that they waited until their children became adults to set up their trusts. That way, the children (adults at this point) can become the trustee and the beneficiary.

Teach Your Kids About Money Now

One commenter suggested that the Redditor doesn’t want their children to have decision-making power over the money. The comment received a few upvotes, and even if this assertion isn’t true, it points to a key action item for any family.

Teaching your children about money increases the likelihood that they become wealthy later in life. Getting kids to value how hard you have to work for a dollar and what it takes to achieve long-term goals can lead to good money habits.

Parents shouldn’t be afraid to talk about money with their children. In fact, these conversations need to be more common. It can keep your children away from credit card debt, speculative investments, and other risks that can derail their financial goals.

It doesn’t matter how much money you give to a child. People who were taught to spend recklessly in their youth can make $1 million evaporate in a few months. That’s why many professional athletes become broke or financially struggle shortly after they retire. 

It’s better to know how to manage a small amount of money than it is to be bad at managing millions of dollars. However, it’s even better if you know how to manage millions of dollars well. The Redditor has worked hard to give their children tremendous opportunities. If they pass their knowledge on to their children and regularly talk about money, they can feel confident about entrusting money to their children.