The following article, “Four Strategies for Leaving Assets to Your Heirs,” written by Indrika Arnold and published by Kiplinger on 2/8/23, resonated with me because it is an excellent example that each client’s estate plan should be customized to that individual’s situation, goals, family dynamics, and more. That is precisely the way I approach each client – starting with getting to know what they want and need. If you’re updating your plan and reviewing how your assets will be distributed, you should check this to see if there are any changes you might need to make.
“No family is exactly like another, so here are some considerations to help you decide which distribution strategy best suits your situation, values, and goals.
When reviewing your estate plan, how you distribute your assets to your beneficiaries isn’t always a simple decision. In addition to determining how to best divide assets among heirs, you must also think about how and when the beneficiaries can access their inheritance and then ensure that these provisions are outlined clearly in your estate planning documents.
With estate planning, every situation is unique, and what works well for one family might not work for another. While there is no right or wrong way to distribute an estate, there are a few considerations to keep in mind to help determine which strategy aligns best with your circumstances, values, and goals.
Strategy #1: Leaving Assets Outright.
The most straightforward option when distributing an estate is to pass wealth to heirs outright, with no restrictions on how they access their inheritance. While this approach is often the simplest, it could have some drawbacks. For example, for families of significant wealth, estate heirs may be encouraged to live off their inheritance rather than produce their own income. Potential outside risks must also be considered when there are no restrictions on accessing an inheritance, such as an heir getting a divorce.
While some families may be comfortable with this approach, it is generally discouraged when distributing significant wealth to younger family members or those who do not have experience managing large sums of money.
Strategy #2: Distributing Assets in Stages.
Distributing assets to heirs in stages allows them to manage their wealth without putting all their inheritance at risk at once. Families keep wealth in a trust and can choose how they want to distribute it. One example is to pay a percentage of the trust to the beneficiary when they reach a certain age, such as 10% when they turn 30, 20% when they turn 35 and so on.
Another option is to award the beneficiary when they achieve a certain goal, such as reaching an educational milestone.
Strategy #3: Leaving Assets in a Discretionary Lifetime Trust.
A more secure option is to leave assets in a discretionary lifetime trust, which would maintain the assets in a trust for the entire lifetime of the heirs. This approach offers the highest level of protection from outside risks such as divorces, lawsuits and poor money management.
Additionally, leaving assets in a lifetime trust allows a family to create a lasting legacy for future generations. While the beneficiaries must rely on the trustee’s discretion to make distributions, there is the opportunity to include specific instructions for the trustee, such as providing money to make a down payment on a home or to support a business venture.
Strategy #4: Combining Distribution Strategies.
A family may find that a combination of the above scenarios works best for them, where beneficiaries receive a certain amount or percentage of their inheritance upfront and leave the balance in trust in perpetuity. This approach allows heirs full access to a certain amount of money to support their lifestyle while pursuing their own ambitions without being wholly reliant on the trust.
Assessing Your Estate Plan
How you distribute your estate is an intentional process, determined by your personal and family situation. Carefully considering and documenting which distribution strategy makes the most sense for you and your family is important, as it will have a lasting impact.”
I hope this article was interesting to you. If you would like to discuss creating your estate plan or making updates, please don’t hesitate to contact me. I’d be honored to help you. Call me at 513-399-7526 or book a consultation through my website, www.davidlefton.com.
Source: Kiplinger, Indrika Arnold, 2/8/23