Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

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Tuesday, May 13, 2014

5 Tips on Leaving an Inheritance

Inheritance

Many parents want to leave an inheritance to their children, but express concerns over whether their children are equipped to handle sudden wealth.  “Some worry that by providing too much money that it will rob their children of the ambition and hard work that it took for them to amass the wealth.”  If you are apprehensive about gifting or leaving your children an inheritance, consider these strategies:

  1. Test Your Children Financially. You can gift up to $14,000 per year to as many people without gift tax consequences.  If married, you and your spouse can give $28,000 per person.  Many parents gift money to their children sans restrictions.  Before handing over a $5 million inheritance, see how they handle $20,000 first.  Do they save it?  Do they pay off debt?  Or do they gamble it away in Vegas?
  2. Use an Incentive Trust. Parents fear that too much money and squash ambition in children.  The solution to this might be to use incentives within a trust instead of leaving an outright inheritance.  You can add language to the trust to ensure distributions if your child is getting their education, making their own money, or involved in a non-profit. 
  3. Distributions Tied to Ages and Events.  Many parents create a trust so that their children receive a small amount of money each year and larger amounts when they reach certain ages. 
  4. Involve Your Children in a Personal Foundation.  Creating a personal foundation can be a great opportunity to support specific causes you believe in, while also teaching children about money. 
  5. Do Not Gift Cash.  Jeff Lewis, an estate-planning attorney, endorses this method saying, “Many of my clients have started using their annual federal gift exclusion to directly pay down either an adult child’s mortgage principal or school loans.  This will make a significant difference to the child’s future financial position, while not putting that amount of cash in their hands today.”

See Robert Pagliarini, 5 Tips Before You Leave Your Kids an Inheritance, Forbes, May 12, 2014. 

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Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink

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