Bill had worked hard to build a successful real estate firm, eventually accumulating an estate worth $4 million. He arranged for each of his four kids to receive an inheritance of 25 percent of his assets when he died. Despite Bill’s attempts to teach his children the value of a dollar, the youngest, Charles, was impulsive and reckless. When he received his $1 million inheritance at age 19, he dropped out of college, bought a fancy sports car and an expensive condo, and blew through his money with a party lifestyle. He was broke by age 22.
Charles story is unfortunately too common: A young adult gets a large inheritance all at once, but having no financial maturity or sense of family legacy, he loses it all.
What can you do if you are concerned that one or more of your children might fare badly with a large sum of money?
Test the Waters
In this article by MarketWatch, Andrew Aran suggests a great way to find out if your children are ready for a large inheritance: Give them some money while you are still alive and watch what they do with it, he says. Do they learn from their mistakes with it, or do they not? This exercise not only reveals your child’s sense of responsibility, it also gives the child some real-world training.
Pace the Distribution
With a trust, you can configure your wealth in many ways, so that your heirs are at least modestly funded, but they don’t have access to everything all at once. Among these, Forbes suggests such strategies as working incentive clauses into the trust and tying payouts to ages and life events.
Involve the Children in Causes You Support
From including charitable trusts in your estate plan to setting up a foundation, and tying your children’s inheritance to issues you believe in, it all can help instill them with your values, as well as demonstrate the good money can do when properly managed.
At ILP, we offer a focused approach to estate planning. Our goal is to help you preserve your family’s legacy as well as your fortune. For more information, call our offices today, 501-221-7776.