You know that the simplest way to leave your assets to the next generation is to give those assets directly to the children. You can write the amount they get into your will and have the executor cut them a check after you pass away. It’s easy. They get the money they expect.
But is that a mistake? It may be. Carefully consider your situation and your family. Do not just do this because it is easy.
Some heirs are too young
You typically do not want to leave assets to heirs who are too young to handle it. Giving $500,000 to a 17-year-old is a recipe for disaster. They may waste it quickly, they may spend it on things you would never approve of and they may grow up to regret those decisions. They’ll realize that that sports car when they were 18 could have been a family home at 29. But, by then, it’s too late. They already made their decision.
For heirs who are minors or who are too young to handle the money, even if they’re over 18, a trust can help. You can set the money aside for specific purposes, like education or medical bills. You can delay it so that they get it when they’re older. You can set down rules that mean they cannot waste their inheritance.
It’s not always a perfect science. You can’t predict everything. But a trust is a great way to plan for the future. You may not be around, but you can ensure that they make wise decisions.
Some heirs are irresponsible anyway
Another problem that you face is that you may have irresponsible heirs whom you don’t trust with your money, no matter their age. Someone who wasted money at 17 may not just stop wasting it at 18 or 25 or even 35. Maybe they will always do this.
Again, a trust can help. Some people use incentive trusts. These do not pay out completely at any age. They force heirs to earn the money. For instance, if you’re worried that they’ll quit their job and fritter away your money, you could make the incentive that they get paid however much they earn each year. Without a job, they get nothing. Work harder, and they can get quite a lot.
You can also use the age-based distributions listed above. You could hold the money back until they turn 40. You know that 18 isn’t some magic age of responsibility, but you hope they will learn it over time.
As you can see, trusts are very helpful and may be better than leaving money directly. Make sure you know what legal options you have.