By: Matt Luedke
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Inheritance Planning Insights
Inheritance Planning Insights that will help you determine what may be right for your family.
Did you know baby boomer parents will leave an estimated $30 trillion to their offspring over the next 30 to 40 years? That is a lot of money. Hopefully those baby boomer parents will have their estate planning “ducks in a row,” when those transfers occur. What are some questions baby boomers need to be asking?
Is My Estate Plan Current?
Do you know the average age of an estate plan? It is about the same age as the eldest child identified in it. That child now has children of her own and no longer would need to have Aunt Helen serve as her guardian. Over the years, tax laws also change. There are also changes in your thinking regarding who would make your own personal, health care, and other inheritance planning decisions. The person your child chose as a mate might not have been your first (or last) choice. Do you want that controlling son-in-law having access to the inheritance, in the event of divorce or if your child predeceases? Estate plans are like automobiles. They only work reliably, when they are properly maintained.
Should the Inheritance be Equal?
Should you treat all of your children the same? The general rule, in order to avoid sibling conflicts, is to divide your estate as evenly as possible. You should provide for the orderly distribution of art, jewelry, antiques, and other sentimental one-of-a-kind heirlooms. This rule of thumb would extend beyond assets to sharing responsibilities for settling your affairs.
What if you distribute your estate unequally? You should be prepared to explain your rationale to your children. There are many reasons parents do this. For instance, one child may have an outstanding loan with no intention of repaying the debt. Whatever the reason, if there is an “adjustment” in the inheritance of any heir, then it is wise to explain the reason in your estate plan, or even better in a family meeting.
What if My Child is a Spendthrift?
When it comes to money, some children grow up and others just keep having birthdays. According to research at Ohio State University, the average person will lose half of his inheritance almost immediately by spending thoughtlessly or through poor investments. Most people spend the rest of the money within a year. Even if your child is a “money grownup,” without advanced planning her inheritance could be taken through a divorce, lawsuit, or bankruptcy. How do you resolve your inheritance planning for her? One idea is an inheritance protection trust.
What is an Inheritance Protection Trust?
Every inheritance is subject to potential divorces, lawsuits, and bankruptcies, when it is paid outright to your child. If that child were to then die, the inheritance might pass to her spouse and not your grandchildren. It is as if the inherited assets were always the assets of the child.
For these and other reasons, inheritance trusts can be created as part of your estate plan. These trusts would actually “own” the assets for the “benefit” of your child. You determine the degree your child benefits from (and even controls) the trust assets. For a financially responsible child, the trust purse strings may be looser than for a financially immature child. You get to determine whether you need to protect the inheritance from the child, for the child, or both. Trusts can be created to meet your unique circumstances.
What About Grandchildren?
Inheritance planning can ensure that your financial legacy remains in your bloodline. For many baby boomers, that is enough motivation for trust planning.