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Will Leaving An Inheritance to Your Heirs Be a Gift or a Curse?

inheritance gift with blue ribbon
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One of the biggest conundrums of estate planning is considering how, or even if, you can give money or property to your heirs in a manner that will help them.

You might be surprised to hear this, but getting a lot of money all at once can actually have harmful consequences.

Watertown Public Opinion’s recent article “How to make sure you leave inheritances that are helpful, not harmful” says that, on average, an inheritance is gone in about five years because of careless debts and bad investment behaviors. The article cites a MarketWatch report about a study found that a third of people who received an inheritance had negative savings within two years of the event.

However, a minority of heirs don’t mishandle their inheritances. If you want to leave your money, your business, or your property to your children when you die, you’ll want to do it the right way. Let’s look at how.

inheritance gift with blue ribbonWhat’s The Purpose of Your Gift?

Before deciding who money or property when you pass away, it’s good to explore exactly what you intend the gift to accomplish. It’s also important to consider the possible negative consequences of a gift.

Determine if the gift will actually cost the recipient time or money. For example, leaving the family home, vacation property, land, or a ranch to your child can often cost them money they may not have in maintenance or taxes.

Will Your Inheritance Cause Problems For Your Heirs?

You should also consider if your decision could cause difficult emotional issues between siblings. If your kids have not always been responsible, it might encourage bad financial behavior. If a beneficiary hasn’t developed healthy financial behaviors, a significant inheritance might actually create new financial troubles instead of addressing existing ones.

One of the biggest concerns that some of our clients have is that their beneficiary would squander their inheritance or that the beneficiary’s creditors would target inheritance to cover the beneficiary’s debts. This is a problem solved by a “spendthrift” trust. With a spendthrift provision in a testamentary trust created under a will or an inheritance trust created under a revocable living trust, the trustee makes all decisions about distributions. This can be an effective means of controlling the flow of money.

A good way to make certain that your bequests are helpful is to explore your own intentions. Ask yourself if you want to leave enough money for the beneficiary to become financially independent and if you’d you like your bequest used in a specific way, like to pay off debt or fund education.

Do You Care How They Spend The Money?

Another way to provide for thoughtful, conscious inheritances, is to speak with the intended recipients.

Ask them directly whether someone would want a bequest, such as a valuable art or coin collection or perhaps an expensive vacation home. Discuss the options and possibilities and don’t simply take for granted what your heirs might want or what they might do with an inheritance.

Leaving a family member an inheritance can be helpful in some instances, but may be exceedingly destructive in others. No two situations are alike, and if you want to increase the chances that your bequests will be helpful, explore and improve your own relationship with money. Examining that relationship can help make sure that what you leave to heirs will be a benefit not a burden.