Estate Planning Mistake: Outright Gifting

Another big mistake that we see is giving things outright to either children or beneficiaries. This is because of the poor mismanagement of the children. But the more common reason why we don’t want to leave things outright to children and other beneficiaries is that we want to protect them from the outside environment. We trust our kids but we don’t trust the outside environment.
Atty. Chris Berry discusses this in this episode of Daily Wisdom.

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Episode Transcript

Mistake in Gifting Outright

Hey, this is Chris Berry with Castle Wealth Group, and today we’re going to talk about the estate planning mistake of giving things outright to your children or beneficiaries. And if you like this information, please make sure to subscribe to our YouTube channel, where we’re providing information and education on a daily basis.

Christopher Berry is a leading estate attorney and advisor in the area of retirement and legacy planning. He has been featured in publications such as Forbes, Kiplinger’s, Crain’s Detroit and more. He’s the host of the weekly radio show and podcast, The Chris Berry Show. He’s a national thought leader as it relates to retirement and legacy planning, and has authored the Amazon best selling book, The Caregiver’s Legal Guide.

One of the big mistakes that we see is giving things outright to either children or beneficiaries. And I’m not just talking about while you’re alive, because I want to make sure that you’re taken care of first and then we’ll worry about what the kids do or don’t get, or what your loved ones get. But really what I’m talking about is upon death. One of the biggest mistakes we see is just relying on beneficiaries or outright distributions to your children. And this could be a problem for one or two reasons.


Poor Financial Mismanagement

One, it could be the poor financial mismanagement of those children. For example, my kids right now are 10 and eight, Ryan is 10 and Madison is eight, and if they were to inherit all of my money, and my life insurance, and everything, they’d spend all the money on Legos and stuffed animals, which I think would be cool, but it’s probably not the best use of the money. Now, technically you can’t inherit property until you turn 18. I’m young enough to remember what I was doing at 18 to 25, and if I inherited $5,000, 50,000 or 500, I would have been the coolest kid on campus, but that would’ve been my only year in campus.

That’s the first problem is poor financial decision-making by children, whether they’re adults or minors. And now understand that age doesn’t necessarily determine whether you have financial maturity, because there could be other situations. We could have a child who might be a special needs child, or a child that may have drug problems, or disability. So there’s a lot of different reasons why leaving outright may be not the best choice because of the child’s situation.

Now, the more common reason why we don’t want to leave things outright to children or beneficiaries is not because of their own poor financial mismanagement or the situation they’re in, but we want to protect them from the outside environment. It’s that we trust our kids, we don’t trust the outside environment. For example, you drive around right now, you see billboards with a lot of these personal injury attorneys. Lawsuits, creditor actions are on the way up.

So if there’s a way to leave things to our beneficiaries and loved ones in such a way that they could be protected from divorces, lawsuits, creditors, bankruptcies, and then if they pass away the money, doesn’t go to a spouse who might remarry, we call those in-laws the out-laws, that money could be left for now, your grandchildren or potential grandchildren, or go to other children. And that’s something that can be done with the trust. One of the biggest estate planning mistakes we see is people naming their kids, even if they’re adult age children with heads on their shoulders, naming them outright as beneficiaries of things like life insurance, 401(k)s, IRAs, Roths, et cetera.


Trust Can Protect the Kids

Instead, it might be a better idea to name a trust as a beneficiary, and then the trust can protect the kids A, from their poor financial mismanagement, but that’s not the big reason, B, we can protect from the outside environment. So whatever you leave to your children to your beneficiaries could be protected for their lifetime, from creditors, divorces, lawsuits, et cetera. That’s why it’s important to name a trust, not just any trust, because most of the trusts that we review say outright to the kids at age 25, 30 or 35.

What happens if your daughter gets divorced at 36? Half that money has gone, or if she passes away, all that money is gone. Might go to a spouse versus going down to your potential grandkids. That’s why in our office, a lot of times we include separate share trust that are what we call legacy inheritance trusts, where your one trust could split into three separate shares, one share for each beneficiary. Each beneficiary could be the trustee of their own separate share, but whatever they keep inside of that trust would be protected for their lifetime, from divorces, lawsuits, creditors, et cetera.

Very different than naming your child outright as a beneficiary, also very different than having one of those basic revocable trusts, let’s say, outright at 25, 30 or 35. Instead, consider a legacy inheritance trust to protect that legacy so that whatever you’ve worked so hard for can be passed down to that next generation as efficiently and effectively as possible and protected from the divorces, creditors, bankruptcies, et cetera.

Hopefully this is helpful. This has been Chris Berry with Castle Wealth Group. Make sure to subscribe to our YouTube channel. Take care.

Castle Wealth Group has clients across the nation and helps families plan, protect and preserve what is important by creating a retirement and legacy blueprint.



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