If you have young beneficiaries (ie children or grandchildren) and you want to ensure that if something were to happen to you, you probably want that inheritance to be a benefit to them and not a detriment.
If it makes you feel better, please know that much of the population in your position is concerned with the same scenario. What to do?
But, that does not answer your question. So, how do you protect your young heirs or beneficiaries from themselves and how they interact (ie spend, invest, lose, gamble) with your assets?
Let’s start with the most basic answer. Don’t have anything to leave to them.
If that doesn’t sound like a plan, then of what you do possess, don’t leave any of it to them.
Ok, I know that these are not the “tips” you were looking for, but they are options.
The most probable and realistic option is to leave the assets to them in a trust. There are two basic trusts, a testamentary trust and a revocable living trust, collectively I will refer to them as a trust. Please read the links to find out what the difference is between the two.
Why is a trust the probable answer? Flexibility and control.
Flexibility in how and why assets are distributed to your kids. And, you can control when and why assets are distributed. You, the creator of the trust get to set the parameters of when and why the assets are distributed. The successor trustee, has the flexibility to ensure that by following your parameters, any distribution of assets will be a benefit to your kids.
A very common distribution schedule is to provide for their health, education, and support until they reach a certain age, let’s say 25. At 25, they can have 1/3 of their individual share of the trust. At 30, they can have 1/2 of whatever is remaining of their individual trust share. Finally, at age 35, if there is anything left, they can have it all.
What if your kids are older than 35, but you are still concerned with them receiving their entire inheritance at once? You can set up a term of years, as in 1/3 of their individual share on your passing, 1/2 of the remainder 5 years after you pass away, and finally at 10 years after your passing, they can have the remainder of their share.
Again, these are both real generalized answers to potential questions. That does not mean these options can’t work for you though.
Lastly, what if you aren’t concerned with how they will spend the inheritance, but with how the inheritance will impact their state or federal benefits? Parents of children with special needs, should take this into consideration. Is your child receiving a large enough benefit from Idaho or the Federal Government that it would be worthwhile to limit their access to an inheritance? Only you can accurately answer this question, but if you answer affirmatively, you should create a Special Needs Trust.
Why is this so often a question parents dwell under? We have all heard stories of how kids have blown through an inheritance, which put them in a worse situation than they were in before. The story has been played repeatedly with lottery winners.
If you fail to plan, the State of Idaho will offer one for you. It is called the Uniform Transfer to Minors Act. The short of it is that a minor cannot legally own property. They must do so through a parent, guardian, or conservator. Any asset passed to a minor child will be held in an UTMA account, with distributions being made for the use and benefit of the child. At age 18, it legally becomes his or hers.
This sounds like a great plan, but there are significant limitations. Not the least of which is flexibility and control. With a UTMA, you have no control on when and how assets are distributed. That decision is made by the State of Idaho and the Conservator. Also, there is no flexibility. All assets will be distributed at age 18 regardless of the child’s circumstances.
But, you can provide that guidance and use your inheritance to motivate your kids to pursue goals that you find worthwhile, ie education, marriage, homeownership, business, etc.
To provide guidance, flexibility and control to your inheritance, contact Jeppesen Law today and schedule an appointment to discuss what your options are. 208-477-1785.