As you begin to think about developing an estate plan, you realize that you’re leaving your adult child a considerable amount of money and other assets. Whether you’ve accumulated them through hard work and smart investing or been fortunate enough to inherit them from your parents and grandparents, you hope they’ll be handled wisely.
But are they prepared to handle it? Even practical, responsible people can be overwhelmed when they inherit money or other assets greater than they’ve ever seen. Whether you’ll be leaving your child a few hundred thousand dollars or millions, if they aren’t prepared for it, they could go through it before they know what happened.
This doesn’t necessarily mean that you have to leave your child’s inheritance in what is commonly known as a “spendthrift” trust. These trusts are often used when parents don’t want to disinherit a child who may have a substance abuse, gambling or spending issue, but they don’t want to give them unfettered access to considerable assets, either.
How do you know if your child can handle a large inheritance?
You can’t know this for certain. However, here are some questions to ask yourself and answer honestly that can help you:
- Does your child live within their budget, or do they use credit cards to help them live a more lavish lifestyle than they can afford?
- Does your child take for granted and feel entitled to the things you were able to give them growing up, or do they understand that they have to work hard to get these things for themselves now?
- Do they have their own savings and investment goals – even if it’s just putting part of their paycheck in a retirement plan?
Based on what you know about your child, will they use the money to pay off student loans, buy their first home or start a college savings fund for their own children, or will they use it to buy things they don’t need?
You may want to use your estate planning process as an opportunity to talk with your child about what you’re able to leave them and perhaps introduce them to your financial, investment, legal and tax advisors so that they’ll have a team around them to help them invest and save their inheritance wisely.