3 Colorado boys are getting a surprise $400K inheritance. Dave Ramsey reveals what the parents should (and definitely shouldn't) do when they turn 18

Lisa said that the “crazy blessing” came about because her sons, ages 10, 7 and 4, had been named beneficiaries on the life insurance of the woman from whom they rented their first house when they were married.

“We just became friends,” Lisa said.

Dave Ramsey’s advice for Lisa started simple enough, but then became a major warning about the impacts this money could have.

Managing money for your kids

First thing, make an appointment with a financial advisor, Ramsey told Lisa.

“I would just open some mutual funds in their name,” he said. “That’s simple.”

Lisa followed up with a question about Uniform Transfers to Minors Act (UTMA) accounts, and Ramsey clarified that that’s what she would be opening.

“These are minor accounts and you’re the custodian, meaning you’re in charge of the money until they turn 18,” he said, adding that there are further complications with this windfall. “The problem that this sets up is that this is their money at 18 years old. And so if they’re doing drugs, they’re going to be well-financed drug users.”

Warshaw questioned whether the money could be transferred to a trust, but Ramsey said no, because the money is “not yours.”

Ramsey said the parents didn’t have a choice, adding that if they did something like put it in a trust, “you could get sued if you do by the kid later.”

“Because your job is to manage it for them as their parent. And if you use it personally, or you somehow trap the money ... that could really come back on you. I wouldn’t do that.”

Teaching financial skills becomes even more important

What a parent, who wants to ensure their children are responsible with money, should do in this situation is acknowledge that they have no control over how their child spends it.

Ramsey pointed to the windfall as an opportunity to home in on what kind of parenting Lisa and her husband ascribe to — and what kind of kids they want to raise.

He used his own personal history to illustrate, explaining that his kids were still young when he and his wife, Sharon, started gaining wealth.

While at first the Ramseys may have thought their newfound wealth was “going to screw up” their children’s lives, he said they realized, “No, it’s not ...”

“It’s going to reveal that we were horrible parents — or it’s going to reveal that we did a good job parenting. One of the two. And so we started raising our children not to be good children, but to be good adults.”

Ramsey’s recommendations on what money lessons Lisa should teach her kids?

“I’m going to teach them how to save. I’m going to teach them how to spend. I’m going to teach them how to live on less than they make,” he said.

He also advised that Lisa not wait until her sons turn 18 to tell them about the money, but instead slowly reveal it to them over time, for example, start to teach them about investing, then mention that there is money invested for them for their future.

And, Ramsey said that kids should still have to work. “Do not allow them to be entitled brats that don’t work.”

The road to 18

Lisa asked if there were any circumstances under which she should use the money for expenses for the kids before they turn 18. Ramsey said that if she wanted to buy them something like a car with the money, she should require that the kids match whatever contribution comes from their inheritance money with their own money they have earned.