Great Expectations are Clear Expectations: The Legends You Leave Behind For Your Grandchildren

Great Expectations are Clear Expectations: The Legends You Leave Behind For Your Grandchildren

CS - Contract Clip ArtNo one wants to be thought of as controlling, but how many times in your life have assumptions you’ve made about what other people thought come back to bite you?   Nothing is more precious than your relationship with your child or grandchild, but good intentions can lead to serious miscommunication and resentment, so…before you tell your child or grandchild you’ll help them in one way or another, consider opening the channels of communication with an expectation statement.

What’s an Expectation Statement?  It’s a “light” version of what’s often referred to as a parent contract.   A parent contract sets forth the obligations of a parent and child in regards to parents providing financial assistance or other benefits to a child.  It is often drafted as an enforceable contract where a parent might be legally bound to provide a benefit.   An Expectation Statement (“ES”) isn’t designed as a legal document that binds a parent or grandparent; it’s just a written statement of what is expected to be eligible for financial assistance that is signed by the young adult and the parent or grandparent.   The goal of creating an ES is to encourage clear communication of expectations in advance to prevent difficulties down the line.

When is an ES Used? If they have the means to help, parents and grandparents often want to find a way to help children and grandchildren get a head start on life.    While many just make sporadic gifts to children than can easily be squandered, other’s make “investments” in the child with assistance designed to encourage what they’ve learned to value – typically education and saving in exchange for a more stable future.CS - Stamp

Providing Financial Assistance in College.  An ES can be a great way to set forth a minimal threshold of behavior in college that you believe is likely to lead to a bright future without being so overbearing that your child misses out on this amazing time of growth, independence and exploration.   Its main purpose is to give you a means of clearly communicating the expected minimum grade point average and course load and actions viewed as necessary benchmarks for you to be willing to make a financial investment in his or her education.   Click here for a sample of an expectation statement for education funding.

Jump Starting Savings.  With age comes financial wisdom, so parents and grandparents also understand the benefit of helping a child create a habit of saving.  Ideally, your child would take advantage of the tremendous power of tax-free, compounding growth by setting aside savings from his or her first paycheck in a retirement plan.   The reality though is that most children don’t get around to saving for retirement until their mid-thirties.  You can make a tremendous difference in your child’s financial security by ensuring that they don’t pass up the opportunity to make contributions to a Roth IRA early in life even if they can’t afford to use their own paycheck to make the contribution.  An ES can allow you to explain to your child that an opportunity exists for you to provide this type of jump start and set forth some minimal expectations for you to make this investment in his or her future.  For more on the benefits of helping a child fund a Roth IRA, read Supercharging Your Child’s Retirement Savings, or click here for a sample of an expectation statement for retirement saving.

How Will My Child React?  Your child’s reaction likely depends on your personalities and how you frame the purpose of the Expectation Statement.  A good way to start the discussion is to explain that paying for college or providing funds to fund an IRA isn’t an expense that you’re obligated to pay but an investment you want to make, provided there’s some reasonable expectation that the investment will bring good things to the child’s life.   It’s important to explain that the ES isn’t designed to take away your child’s freedom as he or she can choose whether to be eligible for your investment.  It’s also worth explaining that the key behaviors you want to encourage or discourage covered by the statement aren’t a random set of hurdles or restrictions, but behaviors you believe are likely to lead to success and happiness for your child.  It’s also reasonable to explain that the ES allows you to set the same expectations among family members if you’re investing in multiple family members, such as multiple grandchildren.

Disclaimer: This has been provided for informational purposes only and should not be considered as investment advice or as a recommendation. Beacon Pointe does not endorse and is not responsible for the content, product, or services of other third party sites or references. Beacon Pointe does not offer legal or tax advice.  Private legal counsel alone may be responsible and relied upon for these purposes. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. CIRCULAR 230 NOTICE:  To ensure compliance with requirements imposed by the IRS, this notice is to inform you that any tax advice included in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of avoiding any federal tax penalty or promoting, marketing, or recommending to another party any transaction or matter.

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