If you’re like me, you want to leave an inheritance for your children. It’s likely part of what you are working so hard to do. But, far too often, the way we leave those inheritances actually does more harm than good. Something no parent wants. Giving outright ownership of our assets to the kids could put everything you’ve worked so hard to leave behind at risk. Why, how, and what can you do about it? Let me share with you the five reasons leaving an outright inheritance to your kids is a mistake and then show you the way to protect your kids’ inheritance for many, many generations.
Your Child’s Future Divorce
According to current statistics, forty-two percent (42%) of our children will divorce during their lifetime. In most divorces property is divided evenly. So if you have a married child, or a child who will get married in the future, and you leave them an inheritance, and they later divorce, as much as half of their inheritance could go to their ex-spouse. You aren’t working as hard as you are to support your child’s future ex-spouse, right? Good news, there is an alternative!
Your child may incur such extreme debt that the only possible relief will come through bankruptcy. Possible causes of such debt are a business venture gone bad, a health event such as cancer or disease, injury, addiction, mental illness, accident that results in either a temporary or permanent inability to work in combination with potentially staggering medical bills. There could also be an accident, resulting in judgment, as discussed below. Bankruptcy does happen to good people and you can ensure that the inheritance you leave behind will never be at risk due to a mistake or health issue.
Unintended neglect that injures someone’s person or property could wipe out an inheritance that you leave your children. For example, ACE Financial Services, Inc. in 2012 found these lawsuit judgments:
I have many clients who tell me they do not trust their children to manage money. This could mean that their children are spendthrifts, unwise investors, or easily manipulated out of the money. And, the statistics support this for nearly 20% of inheritors. According to Prof. Jay L. Zagorsky of Ohio State University, 40% of individuals inheriting less than $100,000 will spend or lose the entire inheritance and 18.7 % of individuals who inherit more than $100,000 will spend or lose the entire inheritance. It’s quite likely that if that inheritance was left in a different way those numbers would greatly improve. I’ll share more with you about that below.
Lost Work Ethic
My father once said, “Some people can’t handle prosperity.” He was right. In fact, most people cannot. For example, Thomas Stanley and William Danko in their book, The Millionaire Next Door, uncovered research showing that children who received an inheritance were worth four-fifths less than others in their same profession who didn’t. Vic Preisser, of the Institute for Preparing Heirs, says that unprepared children who inherit money are susceptible to excessive spending, identity loss, and guilt over receiving money they didn't earn. Preisser says, "In a year to 18 months, everything falls apart -- marriage, finances -- and if there is a drug problem it becomes worse." Thus leaving an outright inheritance to our kids, may do harm instead of good.
There is an alternative!
As we can see, an outright inheritance is NOT the best answer for your kids. Most lawyers would tell you that the answer is to leave your kids’ their inheritance in a Trust and they’d be right, but they would likely still distribute that Trust outright to your kids at specific ages or stages. There’s another plan for your family that is far, far better.
An alternative to an outright inheritance to your children (“outright” meaning they both personally own and can personally lose the inheritance) is to gift your assets to your children at the time of your death via a Lifetime Asset Protection Trust.
A Lifetime Asset Protection Trust can be drafted to give your children full control of their inheritance (if you choose), but ensure they never own the inheritance. And because the rule of law is you can’t lose what you never owned, you are gifting your children with airtight asset protection, of the kind they couldn’t give themselves at any price.
When you gift an inheritance to your children via a Lifetime Asset Protection Trust, the trustees of the trust own the property, not your children. Thus, if your children ever get divorced, file bankruptcy, or are ordered to pay damages in a lawsuit, they can’t lose the inheritance, simply because they never owned it.
You can use the Lifetime Asset Protection Trust as a vehicle for educating your children about investing, giving, and even business by allowing them to become a Co-Trustee of the Trust, with someone you’ve chosen and trust to support their education.
And you can even build in provisions to allow your child to become the Sole Trustee of the Trust or the right to become Sole Trustee at specific intervals, as well, giving them effective full control without the risk of ownership.
There are quite a few nifty additional ways we can structure this trust to meet the needs of your unique family and children.
When you come in for a Family Wealth Planning Session, if you desire to provide the most airtight form of asset protection for your child, and set up a structure that incentivizes them to invest and grow their inheritance rather than squander and waste it, I will discuss all the options with you then.
One of the benefits of a Family Wealth Planning Session is that you will get more financially organized than you ever have been before and understand all of the options for ensuring everything you are working so hard to leave behind to the people you love is handled with the ease, grace and care you desire.
What is a Personal Family Lawyer®? A lawyer who develops trusting relationships with families for life. That’s why Breiner Law Firm offers a Family Wealth Planning Session, where I can review your family wealth needs and help identify the best strategies for you and your family. You can begin by emailing me today to schedule a time for us to sit down and talk because this planning is so important. email@example.com
Going on vacation entails lots of planning: packing luggage, buying plane tickets, making hotel reservations, and confirming rental vehicles. But one thing many people forget to do is plan for the worst. Traveling, especially in foreign destinations, means you’ll likely be at greater risk than usual for illness, injury, and even death. I know, I know, I’m such a downer!
In light of this reality, you must have a legally sound and updated estate plan in place before taking your next trip. If not, your loved ones can face a legal nightmare if something should happen to you while you’re away. The following are 4 critical estate planning tasks to take care of before departing.
1. Make sure your beneficiary designations are up-to-date
Some of your most valuable assets, like life insurance policies and retirement accounts, do not transfer via a will or trust. Instead, they have beneficiary designations that allow you to name the person (or persons) you’d like to inherit the asset upon your death. It’s vital you name a primary beneficiary and at least one alternate beneficiary in case the primary dies before you. Moreover, these designations must be regularly reviewed and updated, especially following major life events like marriage, divorce, and having children. The key? YOU CANNOT NAME A MINOR CHILD! Even as a backup. No really. You must have a trust as a backup to receive the payout on behalf of your minor children.
2. Create power of attorney documents
Outside of death, unforeseen illness and injury can leave you incapacitated and unable to make critical decisions about your own well-being. Given this, you must grant someone the legal authority to make those decisions on your behalf through power of attorney. You need two such documents: medical power of attorney and financial durable power of attorney. Medical power of attorney (included in Advance Directives) gives the person of your choice the authority to make your healthcare decisions for you, while durable financial power of attorney gives someone the authority to manage your finances. As with beneficiary designations, these decision makers can change over time, so before you leave for vacation, be sure both documents are up to date.
3. Name guardians for your minor children
If you’re the parent of minor children, your most important planning task is to legally document guardians to care for your kids in the event of your death or incapacity. These are the people whom you trust to care for your children—and potentially raise them to adulthood—if something should happen to you. Given the monumental importance of this decision, I’ve created a comprehensive system called the Guardian Guide™ that covers this entire process and includes the legal documents naming these guardians as well as your family first response plan.
4. Organize your digital assets
If you’re like most people, you probably have dozens of digital accounts like email, social media, cloud storage, and cryptocurrency. If these assets aren’t properly inventoried and accounted for, they’ll likely be lost forever if something happens to you. At minimum, you should write down the location and passwords for each account, and ensure someone you trust knows what to do with these digital assets in the event of your death or incapacity. To make this process easier, consider using a service that stores and organizes your passwords.
Complete your vacation planning now
If you have a vacation planned, be sure to add these 4 items to your to-do list before leaving. And if you need help completing any of these tasks—or would simply like me to double check the plan you have in place—send me a message at firstname.lastname@example.org.
I recommend you complete these tasks at least 8 weeks before you depart. However, if your trip is sooner than that, call and let me know you need a rush Family Wealth Planning Session, and I’ll do my best to fit you in as soon as possible.
What is a Personal Family Lawyer®? A lawyer who develops trusting relationships with families for life. That’s why Breiner Law Firm offers a Family Wealth Planning Session where I can review your family wealth needs and help identify the best strategies for you and your family. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. While preparing for your Session, you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can mention this article to find out how to get this $750 session at no charge. You can begin by scheduling a time for us to sit down and talk because this planning is so important.