How to keep your family from blowing their inheritance
We all know of situations where a family left a large estate that was completely wasted by their family. In many cases, the inheritance becomes as much a curse as a blessing. In light of these risks, a primary planning goal is to plan to prevent your children and grandchildren from squandering the wealth that you worked hard to accumulate.
A starting point for solving this problem is to educate your children and grandchildren about the value of money and how they should preserve their inheritance. This includes teaching your children about investments, learning about family values and work ethic, and how to live off the income of the inheritance, without spending down the principal. One easy way to educate your children and grandchildren about investments is to start them a 529 education account and let them participate in the management of the investments. You can fund their accounts as birthday or Christmas presents to instill the value of saving. This will allow them to make investment decisions with your advice and counsel.
In many families, the best solution to protect your estate from being squandered is the use of a continuing trust share for certain children. This type of trust minimizes the ability of the adult child or grandchild to get their hands on the money and keeps it from being spent for improper things. Instead, the child or grandchild is given an allowance or an installment distribution, but the principal is professionally managed. The trustee of this trust share could have the discretion in how much the beneficiary needs for their health, education, maintenance and support. These continuing trust shares are often referred to as “dynasty trusts” and help instill a value of asset preservation. They may also have provisions whereby the trust can match earned income the child has so as to promote a
strong work ethic in your family.
In summary, it is tragic to see a financially successful family lose all their investments, within just a few decades after the passing of the grandparents. Proper estate planning can minimize these risks. Adam Williams is the managing attorney at Farrar & Williams, PLLC and can be contacted at 501-525-4401 or by email at adam@farrarwilliams.com.