Leaving Everything To Your Children Outright After You Die Could be a Mistake
You spend your entire life earning your money and protecting it. You are careful with living expenses and purchases. You watch for sales and bargains. You may even clip coupons. You invest cautiously. And after you (and your spouse) die, your children receive everything you owned in one lump inheritance. Now what happens?
It doesn’t matter whether you will leave your children $10,000 or $10 million. There are several reasons why you would not want your children to receive the entire inheritance right away.
- Your children may not be responsible enough to handle this amount of money. Will they in invest wisely…or will they recklessly spend the assets it took you a lifetime to accumulate? Do they have any bad habits…like gambling or drugs? Do they regularly save from their own earnings now…or do they spend everything they can get their hands on?
- Even if your children are financially responsible, they could lose the assets in a lawsuit. If they divorce, an ex-spouse could end up with the your assets as part of the divorce settlement. Even a current spouse could have access to the assets if your son or daughter adds his/her spouse as a joint owner or puts assets in a joint account.
- Too much money too soon can make a person unproductive. Do you want your children to retire as soon as you die?
- If your children are financially secure, you may not want them to inherit from you at all. You may prefer to provide for your grandchildren.
- Assets you leave to your children will be included in their estates…and taxed…when they die. Would you simply be giving them a tax problem…or giving even more to Uncle Sam?
Give Your Children the Protection of Living Trust
You can still provide for your children however you wish by putting certain instructions in your Living Trust.
You can be very specific, or you can let the Trustee decide when to distribute income or principal according to your general guidelines expressed in the trust. (this is called giving the Trustee “discretion”).
For example, you may decide to provide for your children with periodic income. You may want to help them start a new business, buy a home, or even pay for your grandchildren’s education. You may instruct the Trustee to match the income your children earn to encourage them to be productive members of society. Your Trust can even supplement their incomes if they choose to become teachers or do other worth-while but lower-paying work.
How you provide for your children lets you continue to influence them after you’re gone. It lets you provide some values and guidance. It’s an opportunity to be a continuing example. It shows them how much you care about them and their families. And perhaps it will influence them to be as conscientious in their own planning.