A parent’s worst nightmare is leaving their children too soon. That makes planning for the unexpected an undeniably challenging task many don’t want to confront.
It’s our hope, however, that taking the time to build a plan now will help to protect your children in the unlikely event of your early passing. Facing these decisions while you’re still able to put you in control of how your children are to be cared for—rather than leaving difficult choices in the hands of a court.
Alongside a child’s care and schooling, parents should also consider how they’d like to structure the inheritance piece of the plan. Below we share a few key considerations to make when addressing these concerns.
Understanding Their Inheritance
Do you know how much your child stands to inherit? This is a good opportunity to take stock of your assets and how much they’re worth, including,
- IRAs, 401(k)s, and other savings accounts
- 529 plans
- Properties
- Collectibles
- Brokerage accounts
Once you have a good idea of what you have, decide how much you’ll leave to your kids. Is everything going to your children, or do you want a portion of your estate divided amongst other family members, friends, or charity?
Should You Keep Things Equal?
If you have multiple children, consider how much each child will inherit. Choosing to divvy everything up equally is perfectly fine. But some family dynamics are complex, and giving equally to every child might not always be the right decision. For example, parents in blended families sometimes choose to leave different amounts to children brought in from previous marriages.
Take some time to consider your options and what will, ultimately, be the right choice for your children and their future.
Consider the Actual Value of Your Assets
Don’t forget, not all assets carry the same value. Depending on tax liabilities or the potential for appreciation, some things might be worth more than others by the time your child has access to them.
A financial advisor or tax professional can help you sort through the estimated value of assets once your children inherit them—as this may differ from their current face value.
Consider the Timeline
Next, decide at what point your children can control the funds. Should a child have full access to a $1 million inheritance the day they turn 18? Some parents may not be comfortable granting their children a large sum of money without any direction or supervision.
Instead, there are things you can do to help bring structure to the wealth transfer process. A trust, for example, allows you to set parameters that throttle the inheritance.
Instead of receiving $1 million on their 18th birthday, perhaps your child receives $100,000 right away to cover college tuition and living expenses. From there, they receive 25 percent of their inheritance every five years or so. This might be an effective way to support your child financially while encouraging them to be responsible stewards of their wealth.
If you aren’t interested in creating a trust now, you can request in your will for a trust to be established after your passing. Again, this trust would state the terms and parameters for scheduling distributions of your estate to your children.
While we’ve given just a few examples of what you can do, this is a meaningful conversation to have with your significant other and your financial or legal team. They can help determine what’s going to be the best course of action for preserving wealth while caring financially for your children.
Select the Right Conservator for Your Family
Who in your family do you consider to be good with money? In other words, who do you trust to manage your assets after your passing?
Consider asking a like-minded family member with similar values to serve as conservator. Think about how they’ll handle certain situations compared to how you and your spouse would.
If you’re an avid saver who rarely splurges, you’ll likely be more comfortable putting your child’s inheritance under the leadership of someone with a similar mindset. Once you know who that person is, put it in your will.
No matter who you choose to serve as conservator, write down your final wishes with explicit instructions on how you want your children to be raised and their money managed. Make sure the person you choose is willing to work with the right people, like a financial advisor, tax professional, or attorney, to manage your money responsibly.
Get Professional Guidance With Legacy Wealth Advisors
Designing a plan for your children after your passing is a tricky situation. We always recommend working with a team of professionals who can help properly document your wishes and use the most effective vehicles to make them happen.
At Legacy Wealth Advisors, we help parents of young children develop a legacy plan that honors their intent, maximizes efficiency, and minimizes taxes. As you focus on raising your family, let us know how we can help. Feel free to reach out anytime to get started.
Advisory services are offered through Legacy Wealth Advisors, LLC dba Legacy Wealth Advisors, an Investment Advisor in the State of Michigan. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Michigan or where otherwise legally permitted.
All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Legacy Wealth Advisors does not offer tax planning or legal services but may provide references to tax services or legal providers. Legacy Wealth Advisors may also work with your attorney or independent tax or legal counsel. Please consult a qualified professional for assistance with these matters.
