Estate planning, inheritances, and passing on generational wealth should not be taken lightly. Generational Wealth Planning allows you to plan inheritances for children and grandchildren, plus prevents your assets from going to unintended beneficiaries, mitigating potential family conflicts after you are gone. Here are some useful tips for estate planning.
Communicate Openly with Your Children About Your Estate Plan
It is common for children to underestimate or overestimate the total value of their parents’ estates. Talking to your children about your estate not only gives them a sense of how much they may inherit but also gives them peace of mind. Furthermore, it can reduce family conflicts when the time comes. Discussing your intentions regarding generational wealth with your children can help you solve issues that might otherwise prevent the proper distribution of your assets. This would also give you a chance to explain your decisions.
Level the Inheritance Field
If you have several children, you may wonder if they should all receive equal amounts. If you wish to minimize fighting after your passing, it might be a good decision to give each an equal amount. This does not just mean in terms of assets but also in terms of responsibilities. Under certain circumstances, it can be impossible to leave an equal share. Instead, focus on equitable inheritance. Equitable inheritance means that each child receives a fair amount, given their unique circumstances. For example, if your youngest child has yet to attend college while the others have already graduated from programs where you footed the bill, you might allocate more money to the youngest so that they have the same educational opportunity. The same logic might apply if you gave one child money for a down payment on a house; instead of just dividing your assets, you could deduct the amount of the down payment from that child’s inheritance. There is no one “right” answer beyond what is right for your family.
Distribute Your Estate Yourself
One common mistake parents make is leaving their eldest child as the beneficiary and giving them the mandate to distribute the estate. Estate planning attorneys don’t recommend this approach, as it can cause conflict and negative feelings among family members. To avoid potential fighting, do the distribution yourself. Make a list of everything you own, clearly indicating who actually gets what and the method to be used to distribute what is left.
Don’t Forget About Taxes
Many families make the mistake of underestimating taxes. In addition to federal tax, each state has various regulations regarding inheritance tax. Family members are currently required to take retirement account funds over a 10-year period, which may impact their personal tax situation. However, there are strategies available to help you and them avoid taxes. Consulting with a fiduciary financial advisor about life insurance options, qualified charitable donations, and gifting can help you pass your assets to family for years to come.
Eliminate Uncertainties by Creating a Trust
Often, people choose to leave their children’s inheritance to them outright, either immediately or at a specific age, such as 25 or 30. However, once your child receives their inheritance outright, it is legally considered their property and will automatically become subject to creditors’ claims, including to any spouse during a divorce. That is why many estate planning attorneys recommend that you create a trust instead.
It is possible to structure a trust in different ways or even to ensure the trust lasts the child’s entire lifetime. If drafted properly, then this lifetime “dynasty trust” will create an asset protection barrier between the child and the child’s creditors. Trusts also keep your estate out of probate court, saving you (and your heirs) both time and money. In addition, trusts can minimize the amount paid in estate taxes.
Regardless of what you choose, you’ll want to discuss your plans and intentions with a good estate planning attorney and financial advisor. Remember, you are ultimately responsible for the successful transfer of your estate to your beneficiaries.