Why does everyone think estate planning is so hard? You just split it equally among your heirs and you’re done, right? That’s a simple way to do it, but often, not the best way.

 

Everybody’s family is different and you need to think about the specifics of your family; What’s their situation?; How do you want them to benefit from your estate?; Are there special circumstances that require more than a cookie-cutter approach to dividing up your assets?

 

Many years ago, my team was helping a 90-year-old man create his estate plan. His sole heir was a 65-year-old son. When asked if there were any special considerations in how the assets were to be distributed the client said, “I don’t want Junior to get it all at once. He’s not ready to handle money yet.” Obviously, there were special circumstances that had to be addressed.

 

Figuring out the best way for your heirs to receive their inheritance is not always easy. There are considerations such as when they receive it—at a certain age, when a life-change happens such as graduation from college or getting married. Another consideration is whether they should get it all at once or receive it in payments stretched over a given period of time. Once you decide, then have the provisions clearly outlined in your estate planning documents so there’s no confusion.

 

While there is no right or wrong way to distribute an estate, here are four strategies that may give you some guidance.

 

Leaving Assets Outright

The easiest and most straightforward approach to distributing an estate is just to split it up and hand it out. You’re done, the heirs have the money and what they do with it is up to them.

 

One drawback to this approach is that it may encourage heirs to live off their inheritance rather than work, be productive, and earn their own income. This is often the case with younger family members.

 

Also, when there are no restrictions, what happens if an heir gets divorced? Will the heir retain the inheritance, or will it be divided in the divorce decree?

 

Another consideration when assets are distributed outright—do the heirs have experience managing large sums of money? If not, an outright distribution can be overwhelming and disastrous.

 

Distributing Assets in Stages

If you’re afraid some or all of your heirs will blow their inheritance if they get it all at once, why not let them have it in stages? That way the entire inheritance is not put at risk all at one time. It gives them time to get experience at managing assets and if they make mistakes with the first distribution, hopefully, they won’t make the same mistakes with future distributions.

 

If your estate is in a trust, you can specify a distribution schedule. For example, you might have 25% given to heirs when they reach the ages of 30, 40, 50, and 60—you get to decide the percentages and ages.

 

Another option is distribution based on achievement. You can distribute some or all when an heir graduates college, opens a business, buys a house, or has been sober for five years. The milestones and how much the heirs receive are strictly up to you and what you think is best for them.

 

Leaving Assets in a Discretionary Lifetime Trust

This option is similar to the one just described, but leaving assets in a Discretionary Lifetime Trust is more secure. It maintains the assets in a trust for the entire lifetime of the heir and protects the money from divorce, lawsuits, and poor money management skills.

 

This form of distribution also allows you to create a lasting legacy for future generations. The beneficiaries have to rely on the trustee’s discretion for distributions. You can also include specific language allowing distributions for specific events like a down payment on a house or starting a business, etc.

 

Combining Distribution Strategies

There’s nothing that says you can only use one distribution method. You can mix and match. You may have a child who’s perfectly capable of handling money. Give them their entire inheritance all at one time. You may have another child that’s a spendthrift. Give them their inheritance in stages or make it merit-based or both.

 

The bottom line is, do what’s right for your family. And once you’ve put it in place, tell your heirs what the plan is. They may not like it, but there won’t be any surprises when the time comes.

 

 

Disclaimer

This information is presented for informational purposes only and does not constitute an offer to sell, or the solicitation of an offer to buy any investment products. None of the information herein constitutes an investment recommendation, investment advice or an investment outlook. The opinions and conclusions contained in this report are those of the individual expressing those opinions. This information is non-tailored, non-specific information presented without regard for individual investment preferences or risk parameters. Some investments are not suitable for all investors, all investments entail risk and there can be no assurance that any investment strategy will be successful. This information is based on sources believed to be reliable and Alhambra is not responsible for errors, inaccuracies, or omissions of information. For more information contact Alhambra Investment Partners at 1-888-777-0970 or email us at [email protected].