Transferring Wealth to your Heirs - Part Two

When Launa and I revised our estate plan a few years ago, we had the benefit of having been through the process with countless clients over the years. We saw what others had done and witnessed firsthand the results. Some had very detailed plans while others chose to leave a lump sum and let the kids figure it out.

We watched as some kids carefully invested the money for their own future, much like their parents had done. We saw others quickly burn through it as if they were in a race. In almost all cases, heirs who were already responsible with their own money treated the inherited money the same. Heirs less skilled in financial matters, those who needed the money the most, tended to be the ones who spent it the fastest. Thus we noticed the challenge of leaving money to kids. Those who needed the money the most, were the least likely to benefit from it.

These experiences led us to the arrangements we have made in our own estate planning. Realizing that our financially sound children would not need an inheritance, while those who might be struggling may need some help in managing one, we chose to setup our estate to payout in phases. When the two of us are gone, each child will receive a relatively small initial payment. (Sorry kids if you are first learning this right now)

We expect some will invest it well while others will have it spent the first week. The less responsible group would then have 51 weeks to think about how foolish they were before the next installment is paid. Hopefully the kids learn something and the money in year two will last a few weeks longer. And so it will go with distributions each year, with the hopes that each time the kids will learn to be more responsible with what they have.

We view this system as providing some major benefits. The money we leave to our kids will not come in big enough chunks to allow them to go out and buy things they cannot afford to maintain. We have seen all too often how this can lead heirs to be worse off than before they received an inheritance. The phases will also give them time to learn and grow financially. Finally, this method gives us peace of mind, knowing that our kids will benefit their entire lives from what we leave them and not just for a few months.

In my experience helping people structure their estate plans I have found that unique families require unique solutions. Sometimes we turn to a complex trust while in other situations a simple insurance product with an irrevocable payout plan works just as well. The ultimate goal of any plan should be to bless the lives of your heirs, not hurt them. As is often the case in parenting, teaching the kids patience and discipline is not always what they want, but it is always what they need.