When is the best time for beneficiaries to Inherit?

Often times when I discuss drafting a Will for a client, we talk about whether the client’s children that are the beneficiaries should inherit outright or in trust. For many clients, if the child is over 21 or 25, the assumption is that the adult child should inherit outright. But is that really the best idea? So many factors should be considered in determining what is right for your estate plan and your beneficiaries.

Once a person inherits, the money is his or hers and is subject to his or her creditors, divorce and other personal liabilities. While many want to leave their money to their children, there is great concern that those children are not mature enough or financially prudent enough to handle sudden wealth. The clients spent a lifetime saving money and often the children inherit this money in one lump sum. Does this impact ambition? Parents may want to consider delaying the distribution until later in life. This allows the adult child to earn and gain their own independence before inheriting.

The client making the Will may want the trust funds used for specific purposes: education, the purchase of a home, a wedding or to help fund retirement. They may also request that funds not be distributed until the beneficiary has hit certain milestones in their life unrelated to age. These are examples of “Incentive Trusts” which are often established because the client believes that a large inheritance can and will discourage the beneficiary’s drive to make their own way and create their own success. Incentives can be creative or standard. For example, the distribution can match the beneficiary’s own income which gives the beneficiary the incentive to make more money on their own because they will be getting a matching distribution. Exceptions can be carved out for certain professions such as teaching or non-profit work that may pay substantially less. In the alternative, you can reward educational milestones or come up with more creative ideas.

Aside from the more typical reasons to control or delay distributions to beneficiaries, I find more and more clients asking for “holdback provisions” in trusts which allow the trustee the authority to withhold distributions if the beneficiary has issues with substance abuse, criminal issues, marital problems or even immaturity and general bad judgment. Proper drafting can ensure when the inheritance is distributed, in what intervals or installments and under certain conditions.

If you would like to discuss the right time for your beneficiaries to inherit, I would be happy to meet with you at our offices at Law Firm Carolinas, in either Greensboro or Charlotte.

Estate Planning & Admin