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How estate planning can reduce the negative impact of inheritance

On Behalf of | Jul 27, 2020 | Estate Planning |

The idea of being able to pass something on for the next generation is something people around the world strive for. However, for those with substantial assets, an inheritance could produce negative effects for the next generation.

Children who grow up surrounded by privilege and wealth may not have much personal drive to continue seeking an education or pursuing gainful employment. If you want to leave behind a legacy for your family but you also don’t want your children to count on their inheritance as a source of stability instead of seeking their own fortune, careful estate planning can help you do exactly that.

A trust eliminates the biggest problems with standard inheritances

In a traditional, lump-sum inheritance, the heirs of the deceased receive all of the assets left to them at once. This system creates a number of problems. First of all, it can create a tax liability for the heirs and beneficiaries of the estate.

Secondly, a lump-sum inheritance could leave someone already prone to making questionable life choices in a dangerous situation with significant assets available to feed into their worst habits. Coming into a large amount of money all at once could provoke people into irresponsible behaviors that diminish their inheritance before they come to their senses.

When you make a trust as part of your estate plan, you can include terms that protect your heirs from their own follies and the inappropriate uses of the assets that you leave for them. You can also spread their use of the funds out over many years, thereby limiting the tax implications of their inheritance.

A well-structured trust allows you to retain control over assets

The terms that you include in your trust could limit how much someone can withdraw at one time or over a specific amount of time. Monthly or annual limits are common. Additionally, you can even restrict what someone uses the funds for.

A trustee can require evidence of expenses that beneficiaries want to use trust funds to cover or even disburse funds directly to payees. Such limitations are particularly important if your child has a history of substance abuse, compulsive gambling or other problematic personal habits. The more thought you put into a trust, the better it can help you address your family’s needs as you plan your estate.