Losing a loved one is an emotional experience. It’s not something we like to think about, but there are many things we can do to prepare for our family members’ care. One way to make sure the next generation is cared for is to leave a financial legacy.
Consider, however, that not everyone will be mentally or emotionally prepared for the money you wish to leave them.
Consider Age
Children under 18 years old are not able to sign legal contracts. Minors can open a custodial checking account with a parent, but insurance companies, financial companies and the court will not release large sums to children in their own names. Without some preparation, the court system will become involved and will take custody of the funds on the child’s behalf. This could happen through custody accounts, protective orders or conservatorships. Perhaps worse, there is little control over how the money will be used, and the conservatorship will generally be closed and paid to the child when they become an adult, which is age 18 or 21, depending on the state.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Our prefrontal cortex, which is the part of the brain responsible for rational decision-making, isn’t fully developed until around age 25. Giving substantial financial resources to those who are not cognitively ready for this responsibility often ends with poor decision-making at best and self-harm at worst. For example, consider sudden access to addictive substances or the ability to run a craps table at the local casino (both are scenarios I have witnessed).
Look at Lifestyle
Inheritance and planning considerations don’t stop with the issue of age. Plenty of other circumstances need to be considered and planned for:
- What happens if a beneficiary has an existing substance abuse or gambling problem?
- What happens to that beneficiary and their inheritance if they end up in an abusive relationship?
- What if the beneficiary is being sued or getting divorced?
- What if the beneficiary has a disability?
- What about those beneficiaries who just aren’t up to managing their own assets?
Fortunately, all of these issues and more can be addressed with the help of an estate planning attorney. A testamentary trust can be created to ensure minors (and adults who just may not be ready) do not receive money too soon, while also making sure they have funds available to help with school, health care and life expenses.
Make sure to find out who will manage the trust; a trust needs a trustee, and you will have to find someone willing to do the work. Many professional trust companies won’t get involved in the administration of a trust unless the trust contains at least a certain amount of assets. A company may also avoid working with trusts that involve certain complexities, such as requiring a beneficiary to test for substances prior to accessing funds. The right trustee will distribute funds only in the ways you have decided, which could be for anything from education to home purchases to vacations to rehab.
Trusts like these typically have the added benefit of being spendthrift trusts. Because a spendthrift trust is not “owned” by the beneficiary directly, creditors have a difficult time reaching the assets. This can protect the trust from lawsuits, bankruptcies and divorces. It also keeps the funds out of the hands of manipulative family members and friends.
I once worked with an elderly spouse whose wife had passed away years earlier. She knew he was kind and sometimes too generous with those who came into his life. She created a spendthrift trust for his benefit. As professional corporate trustee for a bank, we were able to act as a go-between. In order to access money, he would have to speak with us first. We were able to dissuade him from giving money to any number of scams and phishing attempts, which were more frequent as he grew older.
Review Often
It’s important to review your estate plan after major life events or every few years. If you have more children, get married, divorced, have a falling out with a family member, buy or sell a home or experience a substantial change in your assets, it’s time to update.
Parents and grandparents should also consider what’s going on in the lives of their children and grandchildren. If you created the will or trust when your children were young, their values and priorities have probably changed. Make sure your plan is still effective and will accomplish what you hope to accomplish.
Trusts can be complicated, but they don’t have to feel that way. Contact a qualified estate planning attorney in your state to make the process easier and to ensure your money goes to the right people at the right time.
-
Stock Market Today: Dow Dives 1,123 Points After FedMarket participants reacted predictably to a well-telegraphed hawkish turn by the Federal Reserve.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are SayingFederal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
You've Got a Trust: Now Who Should Be the Successor Trustee?You've set up a trust to protect your assets and your beneficiaries, but you still must choose the right person to execute your wishes. Here's how to do that.
-
Three Ways Fiduciary Financial Planners Put You FirstFiduciary financial advisers are required by law to work in your best interest. Here's how they are key to intentional and efficient financial management.
-
How Long-Term Care Insurance Has Become More FlexibleToday's long-term care insurance offers retirees more appealing options, which can preserve assets and protect the financial stability of a healthier partner.
-
Your Loved One Fell for a Romance Scam: What Not to DoConfronting them probably won't work, but asking them some key questions and urging them to take certain actions could.
-
Three Ways to Help Create Financial Stability for a WidowLoss of a spouse often leads to financial insecurity in retirement. These strategies can help ensure financial stability for the surviving spouse.
-
How to Embrace Personal Growth After a Gray DivorceDivorce at any age is a traumatic event, and resetting psychologically, especially after a late-in-life divorce, is more important than ever.
-
Three 'Yellowstone' Estate Planning LessonsWe can learn a lot from John Dutton's estate planning mistakes. Here are just a few that relate to families in general and family businesses in particular.
-
Claim It Early or Delay? When to Start Taking Social SecurityTiming is everything when it comes to starting Social Security. Here are the top reasons why people choose to delay or take it early, according to one expert.
