Advertisement
inheritance

When Should Your Children Get Their Inheritance?

How can you tell if your children are ready to responsibly receive an inheritance? Here are some age guidelines to consider, but of course, it's more complicated than that.

One of my clients who was leaving $2 million to his three adult children had to decide when each of them would receive a portion — or all — of their inheritance.

The oldest one, in his mid-50s, received his full share immediately after his father passed away. However, the other two children were in their late 30s and were treated differently. Their inheritance was kept in a trust with one-third given to them at age 45; the next one-third at 50 and the remainder when they turned 55.

Advertisement - Article continues below

The father’s intention was to treat the two young heirs fairly — and protect them from spending their share unwisely. His instincts were on the money.

One of the children, a son, was not financially responsible, could not hold a job and had several failed marriages. He called regularly asking for money from his trust simply to pay his bills. Fortunately, he was able to keep a roof over his head and feed his children because of his father’s decision to distribute the funds over a long period instead of at his death.

The younger daughter, however, had a good job and saved money in a 401(k) retirement savings plan. She never needed to withdraw any money from her trust, only needing those funds to pay the accounting and tax fees to maintain the trust. So, when she reached ages 45, 50 and 55, she had plenty of money available to care for her family and enjoy life.

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

As the saying goes, “Love your children equally, but treat them uniquely.” That axiom is true with inheritance planning, too.

When a person is drawing up or revising their will, it’s common to consider how to structure their inheritance payments to children. If their nest egg has grown nicely over many years, the size of an inheritance only raises more questions about how to distribute it — all at once or in smaller portions over a period of time.

Given this backdrop, here are some inheritance strategies to consider:

Children up to age 12

Consider setting up either a lifetime trust or a trust that will last until they are in their mid- to late 40s. At this young age the person or entity you name as trustee to oversee the money is extremely important, because the young child is totally reliant upon an adult steering them in the right direction. It’s also too soon to tell whether your child will turn out to be financially astute or whether money will easily burn a hole in their pocket. A trust protects the child’s inheritance until they have a better understanding of how to manage money and manage themselves. A trust can also protect children against a failed marriage and help financially support them if they choose an occupation that may not pay well.

Teenagers/Children Entering College

At this point, you can better understand a child’s maturity level and direction in life. It’s still a good idea to leave most, if not all, of a child’s inheritance in a trust until they are at least out of college, if not longer. This strategy provides a deterrent to excess spending, such as large parties and vacations with friends or expensive sports cars. And it can help derail any thoughts about leaving college and not graduating. At this age I would still consider setting up a lifetime trust, or one where it will remain in trust until their mid- to late 40s. The trust can provide periodic disbursements during the term of the child’s trust to start a new business, buy a house, supplement monthly income needs, etc.

College Graduate, But Can’t Yet Pay Their Own Way

See Recommendation No. 2.

Mature Young Adults, Especially Those with Families

At this point, the adult child has a strong sense of independence, is more financially stable and may even have their own financial or professional adviser. Consider giving the child some money outright, perhaps 25% to 50%, depending on the size of their potential inheritance. This could come in handy to help your child pay family expenses like private school tuition, put an addition on their house, or make it a little easier to make ends meet each month. However, the larger the inheritance, the longer I recommend that it is in a trust to protect against potential divorces, creditors or wasteful tendencies.

Once the Child Reaches Mid-Life, Give It Away, But Don’t Forget These Exceptions

As child turns 40 to 45 years old, giving them their full inheritance can be the better move. It’s a simplified estate plan, less costly to manage, and there may no longer be a need for the benefits of a trust that I’ve mentioned. There are always some exceptions, of course. For example, if your child works in a profession where they may be sued, such as a medical doctor, or if they have a choppy marriage, you may want to continue to keep some or all in a trust. Plus, you never know what can happen in the future, and money in trust could help be a protective barrier against unforeseen financial catastrophe.

Advertisement

About the Author

Lisa Brown, CFP®, CIMA®

Partner and Wealth Advisor, Brightworth

Lisa Brown, CFP®, CIMA®, is author of "Girl Talk, Money Talk, The Smart Girl's Guide to Money After College." She is the Chief Strategy Officer for corporate professionals and executives at wealth management firm Brightworth in Atlanta. Advising busy corporate executives on their finances for nearly 20 years has been her passion inside the office. Outside the office she's an avid runner and supporter of charitable causes focused on homeless children and their families.

Advertisement

Most Popular

11 Dividend-Paying Stocks You Should Think Twice About
dividend stocks

11 Dividend-Paying Stocks You Should Think Twice About

Dividend-paying stocks often can be a store of safety, but 2020 has been difficult on income equities. These 11 picks look like shaky plays despite th…
September 21, 2020
Medicare Basics: 11 Things You Need to Know
Medicare

Medicare Basics: 11 Things You Need to Know

There's Medicare Part A, Part B, Part D, medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare --…
September 16, 2020
Where You Should Invest Now
investing

Where You Should Invest Now

Kiplinger.com senior investing editor Kyle Woodley joins our Your Money's Worth podcast to answer investor questions about tech stocks, the election a…
September 22, 2020

Recommended

When Is Amazon Prime Day 2020?
spending

When Is Amazon Prime Day 2020?

Circumstances beyond its control have forced Amazon to move its annual Christmas-in-July Amazon Prime Day blowout sale in 2020 to ... later. Is Oct. …
September 22, 2020
Check Your Financial Adviser Now (and Every Year) or Regret It Later
wealth management

Check Your Financial Adviser Now (and Every Year) or Regret It Later

Fewer than 10% of investors use such free background checks as Investor.gov, BrokerCheck or IAPD to check their financial advisers’ backgrounds. These…
September 21, 2020
Now’s the Time for Estate Tax Planning
Financial Planning

Now’s the Time for Estate Tax Planning

There's a wealth of opportunity with IRS interest rates at an all-time low and the federal estate and gift tax exemption at an historic high.
September 18, 2020
A Step-by-Step Guide to Being an Estate Executor
retirement

A Step-by-Step Guide to Being an Estate Executor

Whether you’re planning ahead for your own heirs or have been asked to serve as an executor of an estate for someone else, it pays to understand what …
September 17, 2020