For many families, it is a given that the children will inherit their parents’ wealth immediately after the parents are gone. Many parents work hard all their lives so that they can accumulate wealth and pass on to their children. It is natural to think that your children can simply take over all the inheritance without complication.
However, in many cases, doing so may not be the best course of action. Don’t rely on an option just because it is the simplest one. In certain cases, leaving everything outright to the children may create unexpected tax burden or financial liability that they are not ready for.
Living Trust: Why You May Not Want to Leave Your Children Everything Outright
- In many cases, the children are unfortunately not old enough or not responsible enough to handle their inheritance. If your children are not capable of saving or investing the money wisely, it is possible that they will spend or lose the entire wealth that you have accumulated over the years. Sometimes, the children may have a bad habit, such as gambling or drugs. Others may spend more than they earn and underestimate the importance of saving. In these situations, parents often want to provide more guidance to their children.
- For those with financially responsible children, there can be circumstances that you cannot foresee. For example, if the children get married and then divorce, their divorced spouse can claim their inheritance as part of the divorce settlement. If the assets are put into a joint account, a current spouse can also have legal claims to those assets.
- If the children are already financially secured, some parents may also plan to pass on their wealth to their grandchildren instead.
- A lump sum inheritance will be included in your children’s estates when they die, and their heirs will have to pay taxes again.
It is not to say that there isn’t a good way to pass on your legacy to your children. With proper planning, you will be able to make sure that your children are provided for, without creating any tax burden or unforeseen liability to them.
The best way of doing so is to set up a living trust. With a living trust, you can choose to leave specific instructions to how income and principal can be distributed. You can also name a Trustee, who you trust to take over after you and make the best decisions based on the circumstances.
In a living trust, you can decide to distribute income periodically. You specify if the fund should be used to start a business, buy a home, or pay for the education of your grandchildren. The Trustee can even be instructed to match the income of your children, which encourages them to be productive. The Trust can also supplement the children’s income if they take a teaching job or other respected professions but with lower pay.
Setting up a living trust is a chance for you to leave guidance and financial security to your children and grandchildren even when you are gone. The only way to ensure the best for your family is to plan ahead. Contact a Heritage Living Trust expert today to learn how you can get started.
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