Can You Prevent Heirs from Recklessly Wasting Their Inheritance?
Moral lessons around found in the Bible. One story that is referenced often in estate planning is that of the Prodigal Son, where a father makes decisions about his two sons, one who is prodigal, and the other who is faithful and hardworking.
The Kansas City Star’s recent article, “A plan for preventing children from squandering an inheritance,” explains that the prodigal son demanded his inheritance, then wasted it and returned home in disgrace. However, his father celebrated his return. The faithful son was angry about the celebration because his dad hadn’t done anything like that for him, but the father reminded the faithful son that he would inherit the father’s entire wealth because of his faithfulness.
This brings us to two critical questions that many families must address when developing an estate plan: 1) Will my kids squander their inheritance?, and 2) Should each child receive an equal share of my estate regardless of their relationship to the parents? For children, an inheritance can be like free money that they did not earn. In this case, they will blow it without thinking about their future needs. A good solution is to establish a trust either while living or at death (a testamentary trust through a will) that places restrictions on and controls the timing and amounts of the estate that children can receive after death.
A common schedule is outright distributions of one-third of the estate at age 25, one-half of the estate at age 30, and the rest at 35. The thought is, by that point, the child will be financially mature and not have creditor issues. However, I customize these ages and amounts based on the facts and circumstances that are share by my clients during our initial meeting. This also better assures that the family money stays in the bloodline and out of any unintended recipients, like ex-spouses or in-laws. Divorce or unhappy marriages of their children is a big issue in my practice.
The Prodigal Son parable also discusses the rights of beneficiaries. According to Jewish laws of inheritance, found in Deuteronomy 21:17, the firstborn son receives two-thirds of the inheritance, and younger son receives the remaining third. The 66-33 split came with the requirement that the oldest son takes care of the aged parents.
If you die without a will today, the intestate laws of your domicile state will apply. For example, in Florida, the general rule is that if you are married and both spouses only have children from the marriage, then everything automatically goes to the spouse, if living, and if not, then in equal shares to the children. Of course there are exceptions to this general rule as it pertains to homestead property, minor children, and if either spouse has children not from the marriage. However, if you die with a valid will or a trust, the intestate rules don’t apply. The will or trust states how the shares to children are to be allocated.
You may have children who are careful about money or one or more kids who spend whatever money they get, as fast as they get it. The best solution is to sit down with an estate planning attorney and create a plan that divides your estate in a way that suits your children’s ability (or lack thereof) to handle money and other assets. There are many different ways to accomplish this, but they all require advance planning and the appropriate documentation.
Do you live in Miami-Dade, Broward, or Palm Beach counties in Florida? Laws are constantly changing-- has your estate plan been reviewed in the last 2-3 years? Call me (954-888-1747) right away for peace of mind. I can help!
- My practice is exclusively estate planning and probate,
- I have prepared numerous estate plans in 16 years of practice,
- I have administered estates and trusts through Probate all over Florida,
- I am a Certified Financial Planner Professional™, and
- I am here for YOU today and there for your FAMILY tomorrow.
Reference: The Kansas City Star (November 30, 2016) “A plan for preventing children from squandering an inheritance”