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.
-
The Most Tax-Friendly State for Retirement in 2025: Here It IsRetirement Tax How do you retire ‘tax-free’? This state doesn’t tax retirement income, has a low median property tax bill, and even offers savings on gas. Are you ready for a move?
-
Plan for Higher Health Care Costs in 2026: Projected Medicare Part B and Part D PremiumsIn 2026, Medicare participants will pay more for their health care. Part B costs are expected to rise more than 10%. Here's what you can do.
-
Avoid Medicare's 'Shadow Tax' With This Financial Expert's IRMAA-Busting TipsYou're cruising along in retirement, and then bam: Your Medicare premiums soar because your income crossed the limit. Take a breath. There could be a solution.
-
Grilling Season and ETFs: There's More Than One Way to Cook Up a PortfolioExchange-traded funds come in a multitude of 'flavors' these days, from passive to active to factor-based. Their flexibility is what makes them so delicious.
-
You Don't Want It, But You Should Plan for It Anyway: An Expert Guide to Long-Term CarePlanning for long-term care is crucial to protect your independence, family and financial stability against unexpected health events and rising care costs not covered by standard insurance.
-
Five Questions to Help Ensure a Happy, Secure RetirementYou need to drill down to what you really want out of retirement. Then you can get down to the business of crafting a financial plan to make it happen.
-
I'm a Financial Adviser: This Is How You Can Save for Big Goals Even if You Feel Like You're Barely Getting ByLearning good financial habits — building an emergency fund, paying down debt, saving consistently — gives you flexibility, options and a path to security.
-
How to Buy an Annuity Online (Without Regret)You should never be rushed into buying an annuity. But now that they can be sold quickly and easily online, you need to be more alert than ever to pushy salesmanship. Here are four signs you're working online with a professional.
-
How Much Income Will an Indexed Annuity Get You? An Annuities Expert Lays Out the NumbersGuaranteed lifetime income sounds great, but how much will it be? Several factors determine your future payout on indexed annuities with an income rider.
-
Financial Fact vs Fiction: Why Inflation Is Lower, But Prices Are NotDo you think bonds protect you from stock losses? Are you confident your assets will go to your intended heirs if all you have is a will? Think again — and read on for other myths that could be leading you astray.
