Keeping Your Kids From Overspending Their Inheritance
You have saved up a significant amount of money for your Florida heirs, but you are concerned about their ability to spend their money wisely. For those who stand to inherit property, good financial foresight is a must. That is why about one in three benefactors is drafting an estate plan that will reduce the likelihood of financial mismanagement by their beneficiaries. Benefactors who want to make sure that their estate is handled wisely can take some early action to guarantee success.
First, be sure to communicate your inheritance plan to your beneficiaries. The first time your child or heir learns about an inheritance should not be at the reading of your will; rather, this should be an ongoing conversation. Financial counseling might be helpful if your children stand to inherit more than 50 percent of their annual income. Additionally, benefactors can choose to gift some of their estate before death, giving their heirs some practice with managing large sums of money. Each person can gift up to $14,000 annually without reporting the amount to the IRS.
Trusts provide even more control over the future of your money. You can include financial caveats that ensure your heirs are abiding by your wishes, perhaps requiring them to earn a degree or even pass a drug test before they get the money. Those arrangements may be confusing or offensive if they are not explained, however, so personal communication is key when creating so-called incentive trusts. Employing a trustee, or a third party like a bank, to distribute the inheritance for you can also provide an additional measure of oversight.
You do not have to live with the fear that your heirs will mismanage their inheritances. Instead, take the time to plan for specific contingencies and work together with a probate attorney to draft a comprehensive estate plan. You, too, can leave behind a legacy of fiscal responsibility for your family.