As a loving parent, you want to protect your family if something happens to you. When your children are younger, you’ll need to provide instructions on managing your finances and property, and who will act as their guardian.
However when an inheritance involves adult children, the situation changes dramatically. They may be married with families of their own to care for, or living independently and making their own financial decisions.
What do you do if one of them has consistently demonstrated they make poor choices when it comes to handling money? Although you may not want to leave them out of a will or trust entirely, you’ll also want to ensure that they don’t fritter away your hard-earned assets.
Consider a Revocable Living Trust
Wills and trusts are legal documents often used in the estate planning process. A will details how to distribute your assets, but it only takes effect after you pass away and doesn’t help if you become incapacitated and can’t make your own financial decisions. On the other hand, a revocable living trust allows you to draft specific instructions for the management of your estate not only while you are living, but also if you pass away or become incapacitated. And if circumstances change, you can also change the terms of the trust throughout your lifetime. With a trust, you appoint a successor trustee, which can be a family member, trusted friend or a professional corporate institution who will carry out your wishes if you pass away or are no longer able to make financial decisions. A trust typically avoids probate so your family maintains its privacy and distributing trust assets may be a faster process and less costly as compared to assets that are subject to probate court proceedings under a will.
Mind the Details
Another benefit of a trust is that you can be very specific about how you want your assets passed on. Because you appoint a trustee to carry out your wishes, you can set reasonable limits on the distribution of your money and property. For instance, you can set up age-based installments to your adult child so that they don’t spend it all in one go. The idea is that you can bolster your adult child’s financial security over time and protect them from making rash decisions that a sudden influx of cash might bring. You might also consider distributing the money as an incentive. For instance, you could earmark it for going to college or a trade school. In addition, if you have another child who is responsible with money, you can tailor your instructions so they receive their share of the inheritance differently.
You can also use very strong language regarding the trust. For instance, some individuals have indicated that if any family members dispute a trust, they are no longer able to inherit. This may sound harsh, but many families, especially wealthier ones, have spent years fighting over an inheritance. After all, you know your family better than anyone does, and you want their lives to improve because of your careful planning.
Talk to Your Children
It’s also a good idea to have a money talk with your children so they’re not surprised by the terms of your will or trust. In some cases, leaving your assets can come as a windfall. However, if an adult child has proven repeatedly that they can’t manage their own finances you’ll want to ensure that they understand the reasoning behind the distribution of your assets. It may be an uncomfortable talk to have, but you don’t want them to be surprised or hurt by your decisions.
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Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative, financial advisor, or GreenPath Financial Wellness counselor who can help tailor a solution for you.
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