“Love your children equally, but treat them uniquely.” Many Texas parents live by this creed for raising their kids, but it also rings true when creating an estate plan for distributing inheritance.
Passing along wealth to children can be a complicated task depending upon their age, money management skills or lack thereof, marital status and profession. The process is even more challenging for high-net-worth individuals.
Inheritance strategies to consider
As your nest egg grows, it’s only natural to wonder about the best way to pass it along. Is it better to make smaller payments over time or distribute it all at once? Here are some considerations based on age:
- Young children: For kids up to 12 years old, a lifetime trust or a long-term trust lasting into their mid-40s may be a good choice. Young children are reliant upon adults to look out for them, and it’s too soon to gauge whether they’ll be responsible enough to manage the money and their lives once they become adults.
- Teens to college-aged: While their life is still taking shape and maturity level is coming into view, it may be wise to keep most, or all, of their inheritance in a trust until they graduate from college or later. This guards against squandering funds on partying or expensive cars and other items. Consider a lifetime or long-term trust into their 40s with periodic payments for college and other expenses.
- Young adults with families: At this stage, children are usually independent, more responsible and may even have their own financial advisors. Consider giving a quarter to half of the inheritance up-front to help pay for items, such as private tuition for their kids or buying a house. If the amount is large, consider keeping the remainder protected in a trust against divorce, creditors or other potential liabilities.
- Older children: When children turn 40, giving them their entire inheritance may be warranted. Depending upon the circumstances, the protection a trust offers may no longer be needed. However, protecting those funds may be crucial if they are in a difficult marriage, or are doctors or in another profession where they could be sued.
Protect your family’s future and your legacy
Each person’s inheritance plan is unique. It’s advisable to work with an experienced estate planning attorney to address concerns over distributing wealth to future generations. Your lawyer can help you not only reduce tax liabilities but structure your plan to provide a safety net for loved ones and protect them from potential financial hardships.