Leaving an outright inheritance to your children at your death might seem like a natural choice, but there are good reasons to consider alternatives ways for them to inherit.
First consider that a revocable trust does not protect assets during the life of the person who created it. This is a common misconception. Instead, revocable trust assets are subject to creditors, just as if they were titled in the name of an individual. But when the person who created the trust dies, it automatically becomes irrevocable and not easily reachable by anyone but the beneficiary. Assets held in that irrevocable trust are off limits to your children’s potential future ex-spouses, unexpected extreme debt resulting from health crisis or business failure, lawsuits, or mismanaged personal wealth. Creditors can’t access assets what you worked your life to build.
This is why it is usually best to retain your hard earned assets in an irrevocable trust for your children's benefit with stepped distributions over time. There are other reasons to delay distributions to your children:
1. Financial Maturity
Patience pays off. By postponing an outright inheritance, you give your children time to develop financial maturity. They learn to manage their own resources, make informed decisions, and appreciate the value of hard work. Waiting ensures that they don’t receive a windfall before they’re ready.
2. Protection from Life’s Uncertainties
Life is unpredictable. By structuring an inheritance to be received gradually, you shield your children from sudden financial shocks. Whether it’s divorce, bankruptcy, or unforeseen legal issues, a well-timed inheritance can provide stability during turbulent times.
3. Encouraging Purposeful Living
An immediate inheritance might inadvertently discourage ambition. When children know they have a safety net, they may not strive as hard. Delayed inheritances encourage them to pursue their passions, build careers, and contribute meaningfully to society.
4. Fostering Strong Family Bonds
Waiting to inherit fosters communication and collaboration. Family discussions about financial planning, philanthropy, and shared goals become essential. These conversations strengthen family bonds and create a legacy beyond mere wealth.
5. Tailoring to Individual Needs
Each child has unique circumstances. By delaying inheritance, you can tailor distributions to their specific needs. Whether it’s funding education, buying a home, or starting a business, a customized approach ensures that the inheritance aligns with their life stages.
Let us help you decide how and when your kids ultimately inherit. It's what we do! Preserve your wealth by calling us today (714) 619-4145!