I plan to leave money to grandkids - but they must pass financial-literacy classes to get it. Is that fair?

By Alessandra Malito

'I do believe very much in delayed gratification'

"The grandchildren must take secondary financial classes and pass with a C or better to have access to a small percentage of the funds after reaching maturity." (Photo subject is a model.)

Dear Help Me Retire,

I'm looking to help my grandchildren with their retirement.

My plan for them is to put the money in a trust to be managed by their uncle, with the option to be managed professionally if he feels unable to take on the role. The money will be traded in a public brokerage account so as not to rely on non-publicly traded items that cannot be verified independently.

The grandchildren must take secondary financial classes and pass with a C or better to have access to a small percentage of the funds after reaching maturity. The withdrawals can only come from earnings from that given year. This plan would hopefully allow the girls to fund their children's futures in much the same way I am hoping to help them.

I do believe very much in delayed gratification. I hope I pass that on to them, too.

Thoughtful Grandparent

Dear Thoughtful,

Wow - not only are you planning to give money to your grandkids, but you are planning for their retirements and their children, too? That's a lovely sentiment and I hope they appreciate it. If they're as considerate as you are being, I'm sure they will.

You should think carefully about your plan, however. Stipulations for the inheritance you leave behind are fine, but being too rigid might cause some issues for your grandkids in the future when you are not around to fix anything.

Here are a few things to consider:

Non-traditional retirement

You mentioned you want this money to be used for your grandkids' retirements, but is there a specific age that you had in mind? What qualifies as retirement? These days, it isn't black-and-white.

Decades ago, retirement might have seemed pretty straightforward: A person separated from his or her job sometime around 65 years old, and who has taken up hobbies, moved to warmer weather or dedicated time to watching their grandchildren. Now, people might take "mini-retirements" where they leave the workforce for a couple of years and then return, or they might leave a full-time job and "leisurely" work with part-time or consulting gigs. Many young people now dream of retiring extra early.

"Has the trust defined 'retirement'? More and more people are taking a non-traditional retirement approach," said Flavio Landivar, a certified financial planner at Evensky & Katz/Foldes Wealth Management. "What if one grandkid wants a sabbatical? What if they want to 'retire' at 50? How would that be handled by the trust and trustee?"

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Financial literacy

Financial education is one of the greatest gifts a loved one can pass on to a child, because it sets them up to make informed decisions that could otherwise cost them thousands of dollars. Take college, for example - if students don't have a clear idea of what they want to do, should they choose the more expensive private school or the less expensive state or local university until they find the right program for what they want to specialize in?

If students have the financial education to know the pros and cons of different schools and the costs of tuition, or the long-lasting effects of student-loan debt, they will be equipped to make the hard decisions. The same goes for knowing to shop around for car insurance, understanding cash inflows and outflows so they don't spend more than they earn, and choosing to invest money wisely to meet their goals.

But requiring your grandchildren to pass a financial-literacy class needs to be spelled out clearly, Landivar said. Are there specific subjects that must be covered in the class, such as investing or budgeting? Is it a one-hour course you can find online or does it have to be from an accredited university? Is there an option for a second chance?

The role of trustee

Trustee is an important job. "Your trustee needs to have some financial literacy and sophistication, and you must actually trust them. You will also need successor trustees," said David Haas, a certified financial planner and owner of Cereus Financial Advisors.

You mentioned the kids' uncle will take on the role of trustee, with the option of it being managed professionally if he's not up for the task. That's fine, but it has to be in writing. Do you have the firm listed as the successor trustee? Have you made an appointment at that establishment and discussed the requirements for it? And is there a backup if that firm is no longer around?

As for their uncle, is he aware of the expectations you have for him? And is he financially literate, or does he need to brush up on the basics, too?

This is where you should really have a qualified, quality estate planner and/or attorney who will help you answer all of these questions and write a clear, legally binding document that satisfies your wishes but will be admissible in your state.

Delayed gratification

Trusts aren't always the most tax-efficient, so you should work with your estate planner to determine what the taxable consequences will be for your heirs and if one type of trust might be better for your situation. In the meantime, it doesn't hurt to mull over other ways to help foster an appreciation for delayed gratification - in ways you'd be able to see and appreciate while you're alive.

One option is gifting directly to an educational institution they attend. The annual federal gift-tax exclusion limit in 2026 is $19,000 for an individual. Paying tuition directly to the school on behalf of a student, however, bypasses that limit completely (when used for qualifying expenses - so no room and board). Paying their tuition lets you see them benefit from the money you're giving them, without any extra financial hurdles to jump over.

A Custodial Roth IRA acts just like any other Roth IRA but allows a guardian to manage the portfolio until the child becomes an adult. Like with all IRAs, the individual has to have earned income. With this account, however, you can "match" their earnings, said Catherine Valega, a certified financial planner and founder at Green Bee Advisory. "So get them working early, claiming that income, and then deposit the matching amount," she said.

Of course, this custodial Roth IRA wouldn't replace what you're leaving them as an inheritance with your trust plan, especially given your hopes of it helping them in retirement, but it does allow the grandkids to see the power of a dollar up close and personal by having to work for their money. The bonus is that they can use some of the money they earned, but have it invested for the future as well if you're willing to make a match. You just can't contribute more to it than what the child earned. So for example, even if the limit is $7,500 for the year, if the child only earned $2,000 that year, only $2,000 can be contributed to the account.

You're a generous grandparent. Now you just need to fine-tune your plans so the money works exactly as you want.

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-Alessandra Malito

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08-21-26 1611ET