Guiding Your Legacy: How to Protect Kids From Inheritance

Wealthy families struggle with how to give their children money and property without them being unprepared for the responsibility. The largest transfer of wealth in history is coming soon. It is crucial to ensure that the recipients of the assets are prepared to handle them effectively. 

There are a variety of risks involved, including:

• Lack of financial knowledge can make it difficult for heirs to manage their wealth effectively. This can lead to excessive spending or poor investment decisions.

• Inherited wealth can make children feel entitled and not want to work hard or achieve their goals on their own.

• Predatory Influences: Wealth can attract unscrupulous individuals seeking to exploit your heirs, potentially leading to financial loss or ruin.

• Family conflict can occur when family members disagree on dividing inheritance or managing assets.

• Bad estate planning can lead to high taxes and legal problems, reducing the worth of the inheritance.

Each of these potential dangers can be mitigated through proper planning. The following are essential strategies for ensuring you and your heirs are prepared. As you read through, take an honest self-assessment of whether or not you’ve “checked the box” or still have some work to do. 

Educate and Prepare 

Encouraging financial literacy involves more than just theoretical knowledge; practical experience is invaluable. Help them open a savings account or give them a small allowance to manage, allowing them to make decisions and learn from their choices. Encourage them to set savings goals, whether for a toy, gadget, or even long-term objectives like college funds.

Involving children in discussions about family finances can provide invaluable insights. Share age-appropriate information about the family’s financial situation and involve them in discussions about financial goals. This helps them understand the broader context and the importance of planning for the future.

Remember, leading by example is crucial. Demonstrate good money habits by budgeting, saving for trips, and investing for the future. Your actions can leave a lasting impression and reinforce the lessons you’re imparting.

Implement a Trust

Creating a trust is a smart financial planning tool that goes beyond just managing assets. It serves as a comprehensive mechanism for safeguarding and controlling the inheritance you intend for your children. Creating a trust is a proactive way to protect and handle your assets for the benefit of your kids. It helps improve your estate planning by giving you more control, protection, and customization options. 

Designating a trusted individual or financial institution as a trustee is a fundamental aspect of establishing a trust. This person or entity is responsible for managing the trust assets and ensuring that your stipulations are followed. Their fiduciary duty helps safeguard the financial interests of your children.

Gradual Wealth Transfer

Transferring your entire estate to your children at once can be a risky proposition. Receiving a large sum of money may initially appear favorable. However, it can lead to impulsive spending, poor financial decisions, and conflicts within the family.

A structured time distribution approach offers a much more responsible and beneficial alternative. Using a structured time distribution approach helps you give your children money and teaches them how to handle it well. It also helps create a stable future and keep your legacy for future generations.

Remember, the key is to tailor the structure to your children's individual needs and circumstances. Consider factors like their age, financial literacy, and life goals when setting up the distribution schedule. You can include them in planning, making them feel responsible for their future financial well-being.

Encourage Philanthropy

Getting your kids involved in charity and philanthropy teaches them to be responsible and have a sense of purpose. It goes beyond teaching to give back. It also helps them become active agents of positive change. This process shapes their values and worldview from a young age.

Remember, every act of giving, big or small, has the power to make a difference. Encourage kids to do things they love, like helping animals, protecting the environment, or fundraising for friends. The key is to nurture their desire to help and provide opportunities to put those feelings into action.

Getting your kids involved in charity and philanthropy helps raise good and responsible people. It also creates a group of caring leaders who want to make the world better. That's a legacy worth leaving behind.

Professional Guidance

Managing your estate and wealth can be overwhelming, especially with large assets and complicated family relationships. That's where bringing in knowledgeable financial and legal professionals becomes invaluable.

You can create a comprehensive estate plan by collaborating with financial advisors and legal professionals. This plan will address all of your financial, legal, and personal requirements. They act as your advisors, supporters, and planners. Their role is to ensure the safety of your money, respect your desires, and secure your family's future. 

Getting professional help is not a weakness; it's a smart investment in your future and the happiness of your loved ones. They have knowledge that can save you time, money, and stress in the future. You can trust them with your affairs and enjoy life.

Update Your Estate Plan

Taking the time to review and update your estate plan regularly brings immense peace of mind. You know your loved ones are protected, your wishes are clear, and your legacy is secure. It removes worries, promotes family harmony, and lets you live life fully without future anxieties.

Remember, an estate plan is not a set-it-and-forget-it document. It's a living, breathing reflection of your evolving life. Regularly meeting with your legal and financial advisors helps ensure that your plans stay on track. This guidance is crucial in guiding your family and legacy towards your desired destination.

So don't wait for a major life event to trigger a review. Start incorporating regular check-ins into your routine, just like you do with your health or finances. It's a small investment of time that can yield immense peace of mind and a well-protected future for those you cherish most.

Bottom Line

Protecting your children's inheritance does not involve taking away their wealth or doubting them. Instead, it is about ensuring that they can handle it responsibly. You can use these strategies to protect your family's legacy. These strategies can also give your children the skills they need to succeed in the world of money.

Sources:

https://oechsli.com/my-account/us/library/88024/

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

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This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.