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Planning Inheritances for Your Children

As a parent, it can be nearly impossible to sleep soundly knowing that your children are not financially stable, whether toddlers or grown-ups. That is why you must start thinking about estate planning, which should not be taken lightly. It is important because it prevents your assets from ending up with beneficiaries that were not intended and eliminates family conflicts when you are gone.

"One of the most dangerous things that can happen to someone is receiving a large sum of money they didn't earn." -Donovan Carson

father and son enjoying a walk through apple orchard

Communicate Openly with Your Children

It is common for children to underestimate or overestimate the total value of their parents' estates. Talking to your children about your estate not only gives them a sense of how much they stand to get, but it also gives them peace of mind and reduces family conflict when the time comes. Discussing inheritance with your children can bring up issues that might prevent the proper distribution of your assets. You also get a chance to explain your decision.

Level the Field

If you have several children, you probably wonder if they should all get equal amounts. If you wish to minimize fights after your passing, it might be a good decision to give each an equal amount. This does not just mean regarding assets but also matters concerning responsibilities. Under certain circumstances, leaving an equal share but focusing on equitable inheritance can be impossible. Equitable inheritance means each child receives a fair amount given his unique circumstances. For example, if your youngest child has yet to attend college while the others have already graduated from programs where you have footed the bill, you might allocate more money to the youngest so they have the same educational opportunity. The same logic might apply if you have given one child money for a down payment on a house - instead of just dividing your assets, you could deduct the amount of the down payment from that child's inheritance. 

Distribute Your Estate Yourself or Hire 3rd Party Executors/Trustees

One common mistake parents make is leaving their eldest child as the beneficiary and giving them the mandate to distribute the estate. Estate planning attorneys don't recommend this approach as it can cause conflict and hard feelings among family members. To negate and alleviate any fighting, do the distribution yourself. Make a list of everything you own and indicate who actually gets what and the method to be used to distribute what is left.

Eliminate Uncertainties by Creating a Trust

Often, people leave their children's inheritance to them immediately or at a specific age, such as 25 or 30. However, once your child receives their inheritance outright, it is legally considered their own property and will automatically become subject to creditors' claims, including any spouse during a divorce. That is why many estate planning attorneys recommend you create a trust instead.

It is possible to structure a trust in different ways or even to continue it for the child's entire lifetime. If drafted properly, this lifetime "dynasty trust" will create an asset protection barrier between the child and the child's creditors. Trusts also keep your estate out of probate court, saving you (and your heirs) time and money. In addition, trusts can minimize the amount paid in estate taxes. 

Give While You're Still Living

Why wait until you are gone? Giving some of your estate to your children while you're still alive is a great way to enjoy your wealth and help your kids in their current stage of life. You can also observe what they do or don't do with your gifts to see if they'll be ready for a larger inheritance later.

The Most Important Thing You Leave is Not Money

Your values and time spent with your children are more important than money. If you've spent much time with your kids, had conversations, enjoyed experiences, and been a role model, they are more likely to succeed with money. More important than money is the education and values you pass on.

Regardless of what you choose, you should discuss your plans and intentions with a good estate planning attorney. Remember, you are ultimately responsible for successfully transferring your estate to your beneficiaries.

Invest In a Life You Love,

Donovan Carson - founder of Carson Capital



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