Having an estate plan forces you to ask many important questions, and one of them is when the right time is for your children to have access to their inheritance. The answer is different for every family.
You know your kids best—the one who turns a dollar into ten bucks with seemingly no effort and one who burns through cash like an ATM machine. Some children never learn to manage money well, and others seem to be born with good financial skills. There are ways to control when your children inherit wealth, and how much they inherit.
Wealth Advisor’s article asks, “When Should Children Have Access To Their Inheritances?” The article looks primarily at distributions from trusts created by a will (testamentary trusts). However, these considerations also apply to trusts created during your lifetime, which are called inter-vivos trusts.
Distributions can be discretionary, mandatory or event-driven. In addition to mandatory distributions, a trust can provide that the trustee has the authority to make either fully discretionary distributions or distributions under some “ascertainable standard,” such as for the beneficiary’s health, education, and maintenance. However, detailing only mandatory distributions or event-based distributions significantly reduces the fiduciary’s flexibility.
A trust should be created with the help of an experienced estate planning attorney. He or she will help guide your decisions about trust distributions, that include both the principal and the income generated by that principal.
In many situations, when an estate plan is designed, you may not be sure of the ultimate size of your children’s inheritance. In that case, your attorney can help you plan for an income stream in today’s dollars, as well as a cost of living adjustment to account for inflation. This will eliminate any mandatory income distributions that may mean large distributions to children at relatively young ages.
Alternatively, you could give the trustee the power to make these decisions, and let your children have access to whatever amounts the trustee thinks is appropriate. There’s also a hybrid approach, giving the trustee certain mandatory distributions combined with discretionary distributions. Some estate planning attorneys believe that this provides the most asset protection and flexibility.
Regardless of what you believe is best for your children, you need to create an estate plan to put your wishes into writing. Please contact us today to schedule an initial consultation.
Reference: Wealth Advisor (July 30, 2018) “When Should Children Have Access To Their Inheritances?”