Thoughts On Inheritance

We all want to pass on our hard earned estate to our heirs. But, depending on the age and circumstances of the heirs, the safe and meaningful way to do it can vary greatly. Young children or young adults do not have the ability or experience to handle a large chunk of money suddenly placed in their lap. After years of seeing such situations, it is sad to say that relatives or friends may show up asking for some of that money. So protect your children who due to youthfulness may lose a good part of their inheritance.

One answer is to set up a trust that will hold, invest and distribute those assets to your heirs over time to protect them from their youth, inexperience, and the life changing events that can happen to them. This is absolutely needed for minor children. It can also be helpful for kids in their early twenties or even older if they are known to be careless with money. Your estate can be passed to a trust that an older and wiser relative can control, or your attorney or CPA, who will use those funds for your children up through college and into early adulthood. That way an older and wiser person can serve as your surrogate to care for those heirs you love until they have the maturity to handle their own funds. A typical trust gives your trustee the authority to decide when and how much to distribute. That way the child’s needs, such as living expenses, college tuition and starting out in life, can be met. The trust could require percentages to be paid out at intervals so that the child learns how to handle money, without one big mistake wiping out the inheritance. Normally there is an end date based on the child’s age when the balance left is paid out. An example is a trust that parents created for their child who was well into his forties, but who would have wasted any money he received. The trustee for years paid a monthly amount to live on, bought a car when needed, and took care of other reasonable requests. The trust is done to protect children from their own inexperience.

Another situation arises if your child has a difficult marriage and is likely to be divorced, or has a spouse that spends. Parents can set up a trust that gives total discretion to give or not give distributions to that child and the others. That prevents huge losses of money. A “spray” trust can be established, which means that money does not have to be given to any one person, but can be “sprayed” among the named family members in the Trustee’s discretion. That way the assets will not factor into a divorce because the child who has a marital problem has no legal right to the trust money.

Another situation that is obvious, is parents with a special needs child. A properly drafted special needs trust can be used both for the special needs child and the other heirs. These trusts must satisfy the strict rules that come along with Medicaid or other government programs that a special needs child may be on. It is possible to establish a special needs trust that can have a portion for the special needs child, and the rest for the other children. It is designed to supplement, and not replace, the government benefits that the child needs. That way all the children’s needs are served.

A big advantage of revocable trusts is that they can be changed at any time as long as the maker is alive and competent. If the children’s circumstances change, the trust terms can be changed. Usually nothing is put into the trust until the parents die, but revocable trusts can hold funds during the parents lifetime, if that is desired, and can be changed or the funds removed by the maker at any time.

In summary, there are numerous ways to pass on your inheritance to your family, taking account of their age, health, marriage, or other personal situations so that they will get the benefits that you wish for them. Most family situations are not complicated, but some are and solutions can be found so that money will not be wasted, but will best benefit your heirs over a long period of time.