How to Leave Money Behind – and Help Make it Last

Many families consider a simple will or trust to be sufficient for their estate plan. This is especially the case for families who don’t feel deliriously wealthy. But thinking through how to leave money to your heirs – no matter how much it is – can be extremely important.

Whether it’s because you’re worried about a child’s ability to handle a lump-sum inheritance or because you can already sense the in-fighting and conflicts that could arise, there are many situations where the simplest solution isn’t necessarily the best one.

In these cases, it can be helpful to consider alternative ways of leaving money behind.

In this article, we’ll cover some of the most common strategies and approaches to managing inheritance – and they can apply to estates of just about any size. Just remember, the most prudent course of action for you will always depend heavily on your financial situation, personal preferences, and family.

A more air-tight trust

 Your trust document offers you the ability to control who’s in charge (the trustee) and how your assets should be distributed. You can use these features to appoint a person who will be able to execute your wishes specifically.

Namely, in cases where someone is concerned about a troubled heir or about whether their heirs will be capable of making sound financial decisions, it can be helpful to appoint a professional as a trustee.

After all, family members, siblings, close friends, and other loved ones might struggle to put limits on another family member’s requests or actions. A third party, guided by both legal liability and the explicit instructions you leave in the trust document, may find it much easier to say no.

This level of control doesn’t have to last forever: you can set an expiration date for such limitations. For example, it’s not uncommon for our clients with young children to choose an age at which their kids gain full control of their trust assets.

Leave it in installments

 You can also choose to control how much money goes to your child or other heirs over time. For example, you might decide that each child will receive their inheritance in installments over the course of a decade.

Alternatively, some families choose to leave their child an annuity, which provides payments to a named beneficiary at regular intervals for a period of time or even for life.

One of our clients, a couple, have a beloved son who has struggled with addiction. Knowing that he’ll get both a restricted income and access to estate assets for medical care was a huge weight off our clients’ shoulders.

Annuities are also sometimes used to help balance priorities in blended families with children from previous marriages.


Keeping the Whole Family on Track

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The dry run

 Another alternative is to simply test your kids. In other words, see how they handle a more modest windfall by using the gift tax exclusion to provide them with a lump sum cash gift while you’re still alive.

Seeing what your children do when presented with cash can give you important clues as to how they’d handle the full inheritance.

Do they pay off debt? Spend it all? Consult with their advisor first? We’ve had clients come to our office thrilled at the results of their experiment and more confident in their kids than ever – and we’ve also seen the opposite.

Incentive trusts

 Sometimes families decide to build incentives into their estate plans. These plans are set up to reward “good” behavior by restricting access to assets unless certain conditions are met.

One of the simpler versions of this is to match trust distributions to a child’s income, often with exceptions for important but traditionally low-earning jobs like teaching, non-profit work, etc. Alternatively, you can attach distributions to the achievement of certain milestones, like completing college.

Nurture a more resilient inheritor

 One of the most significant things you can do for a child is to prepare them for your family’s hard-earned wealth – whether you’re leaving a child tens of thousands or tens of millions, by starting financial education early you can help him or her learn how to make smarter money moves.

The ability to make prudent financial decisions is a teachable skill. Many of us learned the ropes without knowing it – we ask questions, research, make mistakes, and start over throughout our lives to build a degree of money competence.

We recommend sharing those lessons.

Talk with your kids about money, about investing, about the objectives and priorities you’re working with, and about the issues that concern you and the goals you have for the future.

This can go a long way towards helping your children build a framework for their own decisions. More importantly, it can help you to share and foster your values.

Bring in advisors

 Whether it’s a modest family foundation, a large family fortune, or simply the family home, having outside help in financial decision-making can make it easier to find the most prudent way to transfer wealth from one generation to the next.

Consider speaking to a financial advisor, not just solo but with your kids. You’ve worked hard to earn what you have, and helping prepare your children to capitalize on your efforts for their own futures can be a gift that has value well beyond the dollars and cents in your estate.

Finally, always consult an estate attorney prior to creating your estate plan. Not every solution is suitable for every family, and a qualified attorney will be able to help you determine the most appropriate course of action for your family.

Plan for generations

 Estate planning is complicated in itself: add multiple generations of loved ones and you might get overwhelmed in a hurry.  We recommend our free guide to multi-gen financial planning, Keeping the Whole Family on Track. This quick read can help you get a handle on the issues and risks involved in planning for your family so that you can start building towards your financial future today.

Download your free copy of Keeping the Whole Family on Track today!


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Let Us Help!

We can discuss this topic and more at a complimentary appointment. As a bay area retirement planning coaches, we can give you a review and make suggestions based on your retirement objectives.

Important Disclosures

The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by United Planners.

To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Neither diversification nor asset allocation can ensure a profit or prevention of loss in times of declining values. United Planners does not render tax advice.

Securities and advisory services offered through United Planners Financial Services, member FINRA, SIPC. Pasquale Vitucci, CA Insurance Lic. # 0758212, is an Endorsed Agent of Vitucci & Associates Insurance Services CA Insurance Lic. # 0I06319. Vitucci & Associates Insurance Services and United Planners are separate and unrelated companies.
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Further reading

A great primer on inheritance challenges: