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You used my money for what!? – How to Leave Your Assets to Your Beneficiaries

Posted by Gregory Poulos | Aug 31, 2017 | 0 Comments

True story … (well maybe since we heard it on the radio…) Since the day his precious daughter was born, a father worked and saved for her college tuition. Now a young woman, she is admitted to college, and he proudly sends her off with her first year's tuition … only to later discover that she used the money for breast implants. What?!?

At least he was still around to argue about it, but what if it happens after he is gone?

We all want to give our children advantages that we did not enjoy. That is why we want to leave them a legacy. But keep in mind that for many kids (no matter their age) your legacy is their found money. While everyone says they “don't want to control from the grave”, do you really want the assets you scrimped and saved for to be used for frivolous or meaningless things? Probably not.

The good news is, through your estate plan, you can exercise some level of control over how your children receive and spend your legacy. For some kids, no control is needed. For others, maybe a lot of control is needed. You might also have to consider what we call “creditors and predators.” So how do you do it?

Let's look at three methods.

Outright Distribution
This method is pretty straightforward. Upon your death and after payment of expenses and debts, your beneficiaries get your stuff immediately. You can do this using a will or a trust. The advantage is that the assets are readily available to your child or they can be folded into their own estate plans. The disadvantages may include some rather serious tax consequences depending on the size of the estate. Also, outright distribution to a child with special needs can interfere with government benefits your child may be receiving. Of course, that irresponsible child (see above) may blow through your assets with the speed of light.

Staggered Distribution
This scenario allows you to make periodic distributions to your children and usually is done through a Trust. Your child can receive a percentage of their inheritance at certain ages, dates or when certain events happen. For instance, when your child turns 21, they receive 1/3 of the inheritance, another 1/3 when they marry, and the final 1/3 when they reach age 40. You can also build in distributions of principal and income for things like a down payment on a home, educational expenses or even a monthly stipend for living expenses. This method is essential if you have young children.

Or if your child is grown but still has some maturing to do, you can structure an “incentive-based “trust. You may have seen the movie with James Garner called The Ultimate Gift. In this film, a deceased billionaire leaves his spoiled adult grandson a series of tasks to perform to receive his inheritance. Similarly, this kind of trust can be used to motivate an immature beneficiary. For instance, your child will receive ½ the inheritance when he or she graduates from college and the other half when he or she retains a full-time job for at least two years. This method of staggered distribution allows you to prevent a beneficiary from having too much control of inherited assets until he or she is more capable of managing them. In addition, this is a good way to protect your child and your assets if he or she is having creditor issues or is going through a divorce.

Lifetime or Dynasty Trust
A third option is to leave assets to your beneficiaries through a lifetime or dynasty trust. In this method, your assets remain in trust for the beneficiary's entire lifetime and perhaps for the next generation as well. For instance, your child would receive distributions from your trustee for health, education and living expenses. This means more administrative expenses, but it also provides solid asset protection from those creditors and predators. This is particularly useful tool if you have a special needs child. You can support their needs and yet not interfere with government benefits he or she may be receiving. It is also a good plan if you are concerned about a child's marriage.

Whatever method you choose, you should start by discussing all options with an experienced estate planning attorney. Each method has pros and cons that should be carefully weighed to meet your goals for your family, and cater to the individual needs of your beneficiaries.

So, make an appointment and get these beneficiary worries off your chest (sorry I couldn't resist).

About the Author

Gregory Poulos

Meet Greg PoulosAn Experienced Estate Planning & Business Attorney serving the Phoenix AreaGregory Poulos counsels clients on the best strategies for accomplishing their estate planning and business goals. Greg starts by “Putting His Clients at Legal Ease” so that they understand the legal issues...


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