Inheritance Archives - Goff and Goff

When you don’t discuss your inheritance with your adult children, you risk negatively affecting their decision-making. Managing expectations and knowing how the inheritance situation will affect them can lead to better decisions. These are practical matters of allocating resources for things like housing, retirement, 529 plans, and more.

When children don’t understand your inheritance intentions, it can result in arguments and legal battles among siblings and other heirs after you’re gone. The solution is a mature discussion with your inheritors, sharing details of your estate plan relevant to your child. You can withhold actual numbers by a range, such as enough for a home downpayment, can provide a sense of magnitude without committing to exact amounts.

The Great Wealth Transfer

According to the Federal Reserve, the baby boomers are the wealthiest generation in US history. Baby boomers hold 70 percent of disposable income in the US and spend over $548 billion annually. Forbes cites research firm Cerulli Associates stating that as much as $84 trillion may change hands by 2045, and much of the wealth is from high net-worth baby boomers. Millennials will control five times as much wealth in 2030 as they do today. Are they prepared for responsible stewardship?

Many who currently have substantial wealth have concerns that if their children know the extent of their wealth, it will reduce their motivation for productivity and growing into responsible citizens. Most parents prefer their children to live a “real” life, learning to grow their success independently of their parent’s wealth. However, wealth is relative, and many parents also fear losing their ability to cover retirement, medical expenses, and long-term care, maintaining their quality of life while protecting their legacy. Because of this uncertainty, generally managing the expectations of their children’s future inheritance is better than providing exact amounts. Things can change.

Failure to Prepare

Failing to prepare children for what they may inherit can hinder their ability to handle money wisely. Many suddenly feel separated from their friends, isolated, or even confused about relationships. Others may be wasteful and spend their newfound money irresponsibly. Those who inherit even a modest amount can be just as irresponsible without guidance. BLB&B Financial Advisors cite, “it takes the average recipient of an inheritance just 19 days until they buy a new car!” It’s all too common for some inheritors to go further and splurge on lavish vacations and fast living.

The Conversation

Experts agree it’s important to talk to children about money and wealth during their adult years to help them learn how to manage money and live beneath their means as a lifestyle habit. Imprinting values, the opportunities money can provide, and their hopes of what they want to accomplish with money are good conversation starters. Providing your younger children with a modest sum of money and parental oversight can teach them how to save and invest, spend wisely, and even demonstrate the importance of supporting charities.

Of course, one of the most effective strategies to teach children about values, spending, and investing money is by example. Parents must use their money in a way that reinforces their values. One way to foster a positive relationship within the family is to purchase a vacation home where everyone gathers for summers, holidays, or annual family gatherings. Other techniques involve permitting children to choose charities to support and provide donations. If your children see you living your values, they will likely adopt similar values.

Estate Planning

Talking to your children about inheritance is an integral part of estate planning. Being transparent, fair, and open to their emotions can help ensure a smooth transition of your assets to the next generation. Keep a few things in mind during discussions:

· Timing is Important

Have these conversations when children are mature enough to understand the implications of inheritance. Don’t create unnecessary anxiety or misunderstandings by starting the conversation too early.

· Be Transparent

Be clear about your estate intentions and plans without getting too detailed about the numbers. Being open about your goals and hopes for them can help avoid future conflicts and misunderstandings. Not providing exact numbers keeps your estate planning flexible.

· Consider Fairness

Consider what is fair and equitable when dividing your assets among children. Each child does not necessarily need to have an equal amount. Consider factors such as their financial situations, relationships with you, and levels of need.

· Address Emotions

Inheritance can be an emotional topic for everyone. Acknowledge and address any feelings of anxiety, guilt, or resentment that may arise during the conversations.

How an Estate Planning Attorney Can Help

There are several ways an estate planning attorney can help when organizing your children’s inheritance, including:

1. Legal and Tax Implications

Estate planning attorneys understand the current legal and tax implications of inheritance. Your lawyer can help you navigate complex laws and regulations, ensuring your assets’ distributions are most efficient and tax effective.

2. Drafting Legal Documents

Estate planning attorneys can draft wills, trusts, powers of attorney, and more to help you plan for your children’s inheritance. Tailoring these documents to your specific needs ensures your assets are distributed according to your wishes.

3. Reviewing and Updating Documents

Estate planning attorneys can review your existing planning documents to ensure they are up-to-date and reflect your current wishes. They may also recommend changes based on shifts in your family or financial circumstances. Informing your adult children of substantial changes is crucial in your inheritance conversations.

4. Guiding Asset Protection

Estate planning attorneys can guide strategies to protect your assets from potential creditors or legal claims. They can also help plan for long-term care and other future expenses to keep the bulk of your estate intact for your children.

5. Facilitating Communication

Estate planning attorneys can foster communication between you and your children about your estate planning decisions. These discussions can help prevent future misunderstandings and conflicts.

Summary

While an estate planning attorney can help ensure your children’s inheritance is organized and distributed effectively, parents also play a key role. Parents must educate their children regarding the value of money, what it can and can’t do for them, and have open conversations about their future inheritance. Including your estate planning attorney in some of the more crucial conversations with your children about their inheritance can be effective. Your attorney can address any questions from a legal standpoint and help the discussion to remain fact-based, keeping emotions to a minimum.

Failing to talk to adult children about their inheritance can leave them unprepared to handle even a modest amount and often results in the money being quickly squandered. Help your children to maintain your legacy and your family’s intergenerational wealth for years to come.

This article offers a summary of aspects of estate planning and elder law. It is not legal advice and does not create an attorney-client relationship. For legal advice, contact our Ruston, LA office by calling us at (318) 255-1760.

Having to cope with the death of a loved one and receiving an inheritance can be an emotional time. The loss of a loved one is sad, but the influx of funds can bring joy or relief. It can be hard to think and plan objectively. After receiving an inheritance, some people are blowing through it surprisingly quickly. Avoiding inheritance mistakes is important. Here are some mistakes people make when inheriting money and how to avoid them.

Not Factoring in Potential Taxes

Depending on the size of the inheritance, you may get bumped into a higher tax bracket than you were previously. You could also be on the hook for capital gains taxes. It is a good idea to talk with a financial advisor or an accountant before you spend any of your inheritance.

Failing to Make a Budget

If you don’t have a budget and are not used to managing money, you may not be prepared to handle a large influx of funds. This could lead to overspending and quickly disappearing inheritance. If you already have a budget, factoring in your new funds will help you see how it will affect your saving and spending strategy.

Spending Too Much

When receiving a large sum of money, it can be easy to think that there is plenty to last. All too often people blow through inheritances by making big ticket purchases, such as cars, boats, or vacations. Even if the purchases don’t seem all that big, the costs add up quickly, especially if items purchased have additional costs, such as maintenance and insurance.

Stay grounded and think about whether or not you really need what you’re thinking of buying. Also consider how much more money you could have in the future if you invest the money instead of spending it now. If you know how much you will inherit before you receive it, you can create a budget to make it last.

Not Paying Off Debts

Paying off debts is the first thing you should do if you inherit a large sum of money. Paying off your mortgage, credit cards, or student loans will give you more freedom to do other things. You will still need to balance the debts you decide to pay with the amount of money you’d like to invest for the future.

Losing Other Income Sources

For people receiving asset-based or income-based government benefits, such as disability payments or Supplemental Security Income (SSI), receiving an inheritance could disqualify them from the benefits. This is something the benefactor needs to plan for before they pass on the inheritance. Establishing and funding the appropriate type of trust will reduce the possibility of this happening.

Not Saving Enough

Suddenly getting a large amount of money can make it easy to think about all the things you can do with it now instead of how you can save and invest for your future. After paying off debts, create an emergency fund with enough money to live on for about six months. Once you have done these two things, start increasing your contributions to your retirement accounts.

Not Getting Expert Advice

An inheritance, especially a big one, can help you achieve financial security and allow you to pursue a dream career or some other life goal. However, an inheritance can vanish surprisingly quickly if not managed well. Before doing anything with your inheritance, consult with a financial advisor, an accountant, and an estate planning attorney. Each of these professionals will help you manage your inheritance wisely and plan for a financially healthy future.

This article offers a summary of aspects of estate planning law. It is not legal advice, and it does not create an attorney-client relationship. For assistance, please contact our Ruston, LA office by calling us at (318) 255-1760.

Discussing Inheritance with Your Children

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