How Do I Leave Assets for Heirs?

How to distribute assets to beneficiaries isn’t always a simple decision. Not only do you want to consider how best to distribute assets, you also want to consider how and when beneficiaries should be able to access inheritances and then ensure this is all documented in your estate plan. A recent article from Kiplinger, “Estate Planning? Four Strategies for Leaving Assets to Your Heirs,” offers a few general considerations. Keep in mind what works for one family may not work for another, even when circumstances appear to be the same.

Strategy 1—Leaving Assets Outright. This is the simplest way to leave assets. However, it holds the potential for problems. If a family has significant wealth, heirs may be likely to live off their inheritance rather than become productive members of society. Risks like divorce or falling prey to scammers must also be considered. This approach is generally discouraged when families with significant wealth are planning to leave money to heirs, unless they have devoted a great deal of time and effort to teaching their children about handling large resources.

Strategy 2—Distributing Assets in Stages. By distributing assets in stages, a family can manage their wealth without putting entire inheritances at risk all at once. Families distributing assets in stages often use testamentary trusts to distribute assets at either certain ages or milestones, such as getting married, buying a home, or the arrival of children. Another is to pay a certain percentage of the trust to the beneficiary at specific ages, such as 10% at age 30, 20% at age 40, etc.

Strategy 3—A Discretionary Lifetime Trust. This type of testamentary trust maintains assets for the lifetime of the heirs. It offers the highest level of protection from outside risks like divorce, poor money management or lawsuits. The discretionary lifetime trust also creates a legacy for future generations. The trustee has the discretion to make distributions according to the ascertainable standards (health, maintenance support and education), but the Testator can also include instructions for the trustee, such as allowing the trustee to provide funds for certain uses, such as a down payment on a home.

Strategy 4—A Combination of Distribution Strategies. A combination of the above strategies may work best for families, so beneficiaries may receive some of their inheritance and leave the balance in trust. This allows heirs full access to a certain amount of money to support their lifestyle while pursuing their own ambitions, preventing them from being dependent on the success of their family.

There are many different tools used to achieve one or more of these goals. An experienced estate planning attorney is the best source for creating a plan to serve the family and the individual.

Reference: Kiplinger (Feb. 8, 2023) “Estate Planning? Four Strategies for Leaving Assets to Your Heirs”