When considering how to leave assets to adult children, the
first step is to decide how much each one should receive. Most parents want to
treat their children fairly, but this doesn’t necessarily mean they should receive
equal shares of the estate. For example, it may be desirable to give more to a
child who is a teacher than to one who has a successful business, or to
compensate a child who has been a primary caregiver.
Some parents worry about leaving too much money to their
children. They want their children to have enough to do whatever they wish, but
not so much that they will be lazy and unproductive. So, instead of giving
everything to their children, some parents leave more to grandchildren and
future generations through a trust, and/or make a generous charitable
contribution.
When deciding how or when adult
children are to receive their inheritances, consider these options.
Option 1: Give Some
Now
Those who can afford to give
their children or grandchildren some of their inheritance now will experience
the joy of seeing the results. Money given now can help a child buy a house,
start a business, be a stay-at-home parent, or send the grandchildren to
college—milestones that may not have happened without this help. It also
provides insight into how a child might handle a larger inheritance.
Option 2: Lump Sum
If the children are responsible adults, a lump sum
distribution may seem like a good choice—especially if they are older and may
not have many years left to enjoy the inheritance. However, once a beneficiary
has possession of the assets, he or she could lose them to creditors, a
lawsuit, or a divorce settlement. Even a current spouse can have access to
assets that are placed in a joint account or if the recipient adds the spouse
as a co-owner. For parents who are concerned that a son-or daughter-in law
could end up with their assets, or that a creditor could seize them, or that a
child might spend irresponsibly, a lump sum distribution may not be the right choice.
Option 3: Installments
Many parents like to give their children more than one
opportunity to invest or use the inheritance wisely, which doesn’t always
happen the first time around. Installments can be made at certain intervals
(say, one-third upon the parent’s death, one-third five years later, and the
final third five years after that) or when the heir reaches certain ages (say,
age 25, age 30 and age 35). In either case, it is important to review the
instructions from time to time and make changes as needed. For example, if the
parent lives a very long time, the children might not live long enough to
receive the full inheritance—or, they may have passed the distribution ages
and, by default, will receive the entire inheritance in a lump sum.
Option 4: Keep Assets
in a Trust
Assets can be kept in a trust and provide for children and grandchildren, but not actually be given to them. Assets that remain in a
trust are protected from a beneficiary’s creditors, lawsuits, irresponsible
spending, and ex- and current spouses. The trust can provide for a special
needs dependent, or a child who might become incapacitated later, without
jeopardizing valuable government benefits. If a child needs some incentive to
earn a living, the trust can match the income he/she earns. (Be sure to allow
for the possibility that this child might become unable to work or retires.) If
a child is financially secure, assets can be kept in a trust for grandchildren
and future generations, yet still provide a safety net should this child’s
financial situation change.
If you have more questions or require counsel, contact our estate planning attorneys, serving clients in Menlo Park, Palo Alto, Redwood City, and the surrounding San Francisco Bay Area.
