Inheritance doesn’t just affect adults. It can affect kids, too. Knowing the basics of what inheritance is and how it works thus should be part of any child’s financial education.
The Simple Definition
Inheritance, in terms of finance, is something that another person arranges for you to have after they die, or which you have a legal right to claim after someone passes away. It is also called a portion, birthright or heritage.
Inheritance can come in many different forms. Usually, it has a cash value. Good examples here are jewelry, a house, land or stocks and bonds. Sometimes an item you inherit wouldn’t be worth anything to anyone except for you. For instance, your grandma’s old sewing machine might have value to you even if it doesn’t work, simply because you have so many good memories of her using it.
Depending on where you live, inheritance also can connect to a title. For example, in the United Kingdom, individuals can be “hereditary peers” who hold titles such as duke and duchess. These titles have different levels of social importance and typically give the holder specific rights.
Some regions still have rules that mean you can inherit debt. In this case, you would be responsible for paying off what a deceased person owes. These laws can mean that you become financially unstable even though you’ve done nothing wrong. Other areas consider this to be unfair, so they have laws that limit lenders’ collection efforts to what the deceased person owned.
Why Give It?
Most people give an inheritance as a way to give some financial stability to their children or other heirs. They provide the inheritance as a way to eliminate hurdles that could keep the children from other investments and a more enjoyable life.
People also offer inheritance because they do not want to be forgotten. The idea here is that, when you spend the money they’ve provided, or when you use or look at an inherited item, you’ll remember their generosity and who they were.
Some areas do not allow you to inherit money or property for free. The governments in these regions require you to pay a fee or tax on whatever you inherit. The amount you have to pay in tax can vary quite a bit, but usually it’s just a small amount of what is left to you. Often, rules let you be exempt, meaning you don’t have to pay the tax at all. You shouldn’t confuse inheritance tax with estate tax. Most of the time, you pay inheritance tax on your own, while the money for the estate tax comes from what the deceased person had.
But I’m Just a Kid…Why Should I Care About This?
As sad as it might be to think about, many kids lose their parents through disease, accidents or other events. For this reason, parents frequently arrange for their kids to inherit money or property through legal documents known as wills. If your parents do this for you, you can become the legal owner of what your parents had, even if you’re not an adult. Generally, if this happens, the funds or property is put into what’s called a trust for you. Depending on the trust arrangements, you might be able to access the property or money before you reach the legal age for your area, but you’ll need to get approval from a trustee, who is simply someone who has been granted the right to look over the inheritance for you.
Even if your parents live to an old, old age, other members of your blood family such as grandparents can think of you with their money or property. Not only that, but families today are much more complex than they were in the past, and new laws are reflecting this. Step-relatives and legal guardians sometimes can leave inheritance, for example. That means you might have to look beyond your parents to know if you’ll inherit anything. Ideally, you should know if you’re going to inherit something because it can have such a big effect on the financial decisions you make later on.
Even though you might think of inheritance as something for adults to worry about, kids can inherit, too. The more you understand it, the more prepared you’ll be to work with money or property someone gives to you in a responsible way.