Estate planning is about making sure your property and assets go to the people who deserve them. If you have a spouse, children, and/or grandchildren, you probably want them to receive the lion's share of your estate. So, you leave them your property in your will. Unfortunately, for a few reasons, that might not be enough to provide the strongest protections for your estate. We'll explain why that is in this blog and provide some guidance on the best ways for passing on your wealth to the next generation.
The (Potential) Problems
Let's say you leave each of your kids $10,000 through your will and, tragically, you pass away before they reach the majority age of 18. Because they aren't eligible to receive their inheritances, the court must appoint someone (guardian of the estate) to look after their money. If you don't name a guardian, you run the risk of someone with less-than-good intentions being named to the position.
Then, once your kids reach 18, they will receive the full $10,000 at once. Although 18-year-olds are legally adults, most still have some growing up to do. Countless 18-year-olds are found to have squandered their inheritances within five years of receiving them. If your kids hold on to their inheritances, they might have to contend with creditors, divorce decrees, and judgments — all of which could pose threats to their inheritances.
In another scenario, let's say you left your kids' inheritances to your brother. You figure your sibling will be able to be discerning when distributing the money. Before making the bequest in your will to your brother, you request that he only distribute the money for educational purposes. However, there is nothing that requires your brother to honor that request.
Trusts are quite useful in these situations. More specifically, we recommend creating discretionary or continuing trusts to make sure your children responsibly spend their inheritances. Continuing trusts allows grantors to dictate how — and when — the trust's beneficiaries receive the assets which were funded in the discretionary trust. For example, if you are the grantor (creator) of a discretionary trust, you can stipulate that your beneficiaries can receive capital from the trust when they marry or purchase their first home. If you sense that a beneficiary might be headed for a particularly nasty divorce, you could opt to keep money in the trust so it is shielded the beneficiary's soon-to-be ex-spouse.
A continuing trust means that it will continue to be active after the grantor passes away. Some trusts must be emptied out and paid to beneficiaries as soon as the grantor dies, but a continuing trust can avoid that situation's potential pitfalls. Your attorney will be able to help you determine whether your discretionary or continuing trust should be revocable or irrevocable.
Secure Your Wealth For the Next Generation
At its most basic, your estate plan should give your assets to the people who deserve them. More precise planning, though, can ensure that your estate and everything else you worked so hard for can pass to the next generation in a responsible and strategic manner. Reach out to an estate planning attorney at The Browne Firm today so we can help you build and maintain wealth that will stand the test of time. We also have a variety of fee structures to better serve your needs; we look forward to speaking with you soon!