July 12, 2016
The “10 Most Gruesome Estate Planning Mistakes” series. Mistake #3: Giving Property Outright to Your Children
Here is another “solution” that might sound good at first, but ignores several important realities. Giving property outright to your children is what we call at The Elder Care Firm, giving out ‘pillow cases of money’ to them. At the time of your death, you are essentially tossing a pillow case of money at your children. The problem with this approach is the ‘wall of time.’ We cannot predict what will be going on during your children’s’ lives at the time of your death. Launching a pillow case of money to your children without any protection or restrictions on that money may result in catastrophic consequences.
Reasons Against Outright Distribution
For instance, what if the child in question is too immature to handle the responsibility of a large sum of money on his or her own? What if the child suffers a severe financial setback that puts the inheritance at risk to creditors? What if the child cannot pay back their student loans or gets sued? What if the child marries a fortune-hunter, is addicted to drugs or alcohol, gets divorced or remarried? In short, you may need to protect your children and heirs from their own poor decisions.
Even if your children or heirs make good decisions and are financially sophisticated, you still may want to protect them from the outside environment because life can throw many curveballs (i.e., divorce, lawsuits, creditors). What if we can protect them against predators and the outside environment.
Planning Options
One of our planning options is called an Asset Protection Trust. Think of it as putting your property in a lockbox for the next generation. We build in an extra layer of protection, we give your beneficiaries the opportunity to protect the assets instead of just leaving the property outright to them unprotected. As expert estate planning attorneys, we view giving money outright as a bad idea.
Also, If your kids are minors or you have minor grandchildren, it would be a bad idea to leave a large sum of property to them outright. Most of our clients not only want to protect the money for the minor, but also want to allocate how the money should be spent, when the child should receive the money, and who would manage the money for the child until they reach the age of majority.
When a person turns 18, they are legally an adult and therefore old enough to receive an inheritance. We view leaving money outright to a beneficiary who is from ages 18-25 as a potential recipe for disaster.
Get Educated
To learn more, join us for one of our FREE LifeCare Planning Workshops. Our estate planning experts will have upcoming workshops in Ann Arbor, Bloomfield Hills, Brighton, Dearborn, Lansing, Livonia, Novi, and Trenton. We promise that time will fly, you’ll learn a lot, and have a little bit of fun. To sign up for a LifeCare Planning Workshop click here.