The thing about having kids when you’re wealthy is that you have to think about death. I know that’s not a fun way to start this conversation, but it’s true. You have to think about death because if you don’t, the courts will have to think about it for you, and they’re not very good at it.
The basic problem is that if you get hit by a bus tomorrow (sorry), someone needs to:
- Take care of your kids
- Take care of your money
- Make sure your kids get the money eventually, but not in a way that ruins their lives
You might think “well, I have money, so this will sort itself out.” But money without planning is like having all the ingredients for dinner but no recipe. You’ll end up with something, but probably not what you wanted.
The Boring Paperwork You Need
The first thing you need is a bunch of documents. They’re boring but important. Here they are:
- A will, which tells everyone who gets your stuff and who takes care of your kids
- A revocable living trust, which is like a will but keeps everything private and out of court
- A healthcare power of attorney, for medical decisions if you can’t make them
- A durable financial power of attorney, for money decisions if you can’t make them
You need all of these. Even if you have a trust, you still need a will. Even if you’re young and healthy, you need the powers of attorney. It’s like having insurance – you don’t need it until you really, really need it.
The Thing About Asset Titling
Having all the right documents is only half the battle. You also need to make sure your stuff is titled correctly. Think of it this way – your will is your itinerary showing where everything should go, but you’ll have to stop at customs (probate court) on the way. Probate court is slow, expensive, and everyone can see what you’re bringing through. A revocable trust is your diplomatic passport allowing you to reach your destination unbothered.
The goal is to have as little as possible go through probate. That means:
- Retitling all meaningful assets to your revocable trust (think brokerage accounts, real estate)
- Check the beneficiaries on your life insurance (when’s the last time you looked at those?)
- Double-check your retirement account beneficiaries
- Look at how your bank accounts are titled
The fancy term for this is “asset titling,” but really it’s just making sure your stuff goes where you want it to go, as quickly as possible, with minimum fuss. Don’t be the person who goes through all the effort of estate planning only to have everything still titled in their name. I see it all the time.
The Guardian Decision
Someone has to take care of your kids if you’re not around. This is the hard part. You have to pick someone (and a backup or two).
The court will pick someone if you don’t, but courts are weird about this. They tend to pick the relative with the most money, which is like picking a babysitter based on their credit score. Sure, your sister—who happens to be a successful private equity GP—might seem like an ideal candidate, but maybe your best friend, a dedicated third-grade teacher, could be a better fit for the values and environment you envision for your kids. There isn’t always an obvious winner, but don’t leave this decision to chance with the courts.
Here’s the good news: you can change your mind. If you pick your sister and she later joins a cult, you can pick someone else. You don’t even have to tell her. Just update the documents.
The Money Part
There are basically three ways to give money to your young kids:
- 529 plans (for education)
- Custodial accounts (usually a bad idea)
- Trusts (more complicated but better)
Let’s talk about each one.
529 Plans
These are good. They’re simple. In 2025, you can put in $19,000 per year per parent per kid, which is the annual gift exclusion set by the IRS. Or you can do five years at once – that’s $95,000 per parent per kid. The money grows tax-free if you use it for education. And when I say “education,” I mean more things than you might think.
Recent legislation keeps making 529 plans better. First came the SECURE Act in 2019, then SECURE 2.0 in 2022. It’s like they kept finding cool new features to add to an already great product.
Here’s what you can use 529 money for now:
- College (obviously)
- Private K-12 school ($10,000 per year)
- Trade schools and apprenticeships (yes, really – your kid wants to be a high-end welder? That works)
- Student loan repayment (up to $10,000 total)
- Books, computers, and required supplies (if they’re for school)
But here’s the really interesting new thing: starting in 2024, if your kid doesn’t need all the money (maybe they got a scholarship, or decided college isn’t their thing), you can roll up to $35,000 into a Roth IRA for them. There are some rules:
- The 529 must have been open for 15 years
- The money you roll over can’t be from contributions made in the last 5 years
- The rollover can’t exceed the Roth IRA contribution limit for that year
- Your kid needs to have earned income to do the rollover
Think about that for a second: money that grew tax-free for education can become money that grows tax-free for retirement. That’s pretty neat.
Other cool things about 529s:
- Anyone can put money in (grandparents love this)
- If one kid doesn’t use all their 529 money, you can move it to another kid, or even save it for grandkids
- If your kid gets a scholarship, you can withdraw the same amount from the 529 without paying the usual 10% penalty (you’ll still owe taxes on the earnings, but hey, your kid got a scholarship!)
- Some states give you a tax deduction for contributions (check your state’s rules)
Oh, and here’s a pro tip: you can open a 529 before your kid is born. Just make yourself the beneficiary, then switch it to your kid after they arrive. It’s like getting a head start on compound interest.
Custodial Accounts
I don’t like these. Here’s why: when your kid turns 18, they get all the money. No rules, no restrictions. Just… here’s a pile of money, try not to do anything stupid.
Think about yourself at 18. Would you have done smart things with a big pile of money? Maybe! But I wouldn’t bet on it.
If you really want to use a custodial account, keep it small. Like “first car” money, not “first yacht” money. Actually, giving your 18-year-old access to a smaller sum of money can be a useful test run. Think of it as inheritance practice. Watch what they do with it and adjust your approach as necessary.
Irrevocable Trusts
These are better. They’re more complicated, but they’re better. Here’s why:
First, you can make rules about the money. Like:
- You only get money for education
- You get some money at 25, some at 30, some at 35, etc.
- You have to have a job to get money
- You can’t use it to fund a permanent vacation
But here’s where it gets interesting: these trusts are amazing for building generational wealth. Let me explain why.
Remember how I mentioned the annual gift exclusion before? In 2025, that’s $19,000 per person. Well, you can put that much into a trust each year for each of your kids. Your spouse can do the same. So for two kids, that’s $76,000 per year moving out of your estate, free of any gift tax. This can really add up over time.
But wait, there’s more! (Sorry, I couldn’t resist.)
There’s this neat thing called a “grantor trust.” Here’s how it works:
- You put money in the trust
- The trust invests the money and (hopefully) makes more money
- The trust generates a tax liability
- Those taxes flow through to your personal tax return, not the trust’s
- Paying those taxes for the trust doesn’t count an additional gift
This is completely legal. The IRS knows about it. They’re fine with it. It’s like being able to make extra gifts to your kids without using up any of your gift tax exemption.
You can put all sorts of things in these trusts:
- Money (obviously)
- Stocks and bonds
- Real estate
- Art (yes, really)
- Shares of your privately held startup
- Pretty much anything valuable that might grow over time
Here’s why this is so powerful for building generational wealth:
- Everything you put in the trust gets out of your estate
- Everything the trust earns grows outside your estate
- You’re paying the taxes, so the trust money grows even faster
- The trust can keep going for generations (subject to state limitations)
- The assets are generally protected from divorce and creditors
And if you’re worried about putting too much in the trust (maybe your startup really takes off), you can turn off the grantor status. The trust will start paying its own taxes. It’s like having a dimmer switch for your generational wealth planning.
Think of it this way: Regular savings are like planting a tree in your yard. A trust is like planting a tree in a National Forest that:
- No one can cut down because it is protected by law
- Doesn’t count as part of your property
- You can keep watering (paying the taxes)
- Can keep growing for generations
- Can’t be taken away if something goes wrong
That’s why I say trusts are better. Yes, they’re more complicated. Yes, you need lawyers to set them up. But if you’re serious about building wealth that lasts beyond you, this a great way to do it.
Insurance and Death
Nobody likes talking about life insurance. But here’s the thing: if you have young kids, you should probably have it. At least for a while.
Get term life insurance. It’s cheap and simple. Get enough to get your kids through college. You can always get more complicated insurance later if you want, but start with term.
Don’t overthink how much insurance you need. The goal is simple: have enough to support your kids until they’re through college and have a chance at supporting themselves. There are lots of fancy calculators and formulas out there, but you can start with something like a 25-year term at 10x your household income and adjust from there to match your needs. For a high-net-worth family, this might be in the $5-10m range.
Here’s a trick wealthy people use: put your life insurance in something called an ILIT (irrevocable life insurance trust). This keeps the death benefit out of your estate. If you have enough money that estate taxes matter to you, this is a good idea. Plus, the money will be held in trust and you can leave instructions on how the funds should be used. Again – it’s rarely a good idea to hand over millions to a young adult without guardrails in place.
There is one thing people mess up with ILITs all the time: how you pay the premiums matters. A lot. You can’t just pay the insurance premiums from your personal account. That would undo all the trust magic and pull the death benefit back into your estate. Instead, you need to gift money to the trust, and then the trust pays the premiums. Miss this detail, and you might as well not have bothered with the trust in the first place.
Tying It All Together: The Gift Limit Thing
Here’s something important: the annual gift limit applies to everything we’ve talked about. It’s not $19,000 for the 529, and another $19,000 for the trust, and another $19,000 for something else. It’s $19,000 total, per person, per year.
Let’s say you put $19,000 in your kid’s 529 plan in January. Then in July, you want to put $19,000 in their trust. That second gift doesn’t get the annual exclusion treatment anymore. It counts as a taxable gift and uses up part of your lifetime gift exemption. This comes up all the time when people try to fund a 529 plan and fund their life insurance trust in the same year – surprise, you can’t use the same annual exclusion twice.
This doesn’t mean you shouldn’t make gifts over the annual limit. Sometimes that makes perfect sense. But using your lifetime gift exemption is a bigger deal that needs more planning. It’s part of your overall estate strategy, and you should probably talk to someone about how it fits into your bigger picture.
What To Do Now
Here’s your to-do list:
- Get those four documents I mentioned at the start
- Pick a guardian (you can change it later)
- Set up a 529 plan (you can pick the investment options later)
- Get term life insurance (it’s cheaper when you’re younger)
- Talk to someone about a trust (not a custodial account!)
- Start thinking about your ethical will (learn about that here)
The nice thing about this list is that you can do it in pieces. Get the documents first. Then do the 529 plan. Then work on the trust. It’s better to have something set up imperfectly than to have nothing. You can change almost all of this later. The only thing you can’t change is not having done anything at all.
I know there is a lot to consider here. If you want to talk through these concepts, schedule an introductory call though the contact page.
Disclaimer: The content provided in this blog is for informational purposes only and should not be considered as financial, legal, or tax advice. Wolf Pine Capital does not guarantee the accuracy or completeness of any information provided herein. Please consult with a qualified professional regarding your specific situation before making any financial decisions. All investments involve risk, and past performance is no guarantee of future results.