Ways You Can Plan to Leave a Lasting Legacy

While it’s important to plan for future generations, we have noticed a disturbing trend of inheritances vanishing only a year or two after being received. The unfortunate part is that it doesn’t seem to matter how much the person inherits. If it’s $100,000 or $1,000,000, it seems to go just about as quickly.

This has led to many of our clients looking for advice on how to make sure the money they are leaving their children really does leave a legacy rather than just a couple of fun years. The speed at which some heirs spend money can become downright scary when you consider that a lot of times this money was pulled from a qualified account such as an IRA that leads to serious income tax consequences the following year. This has forced more than a few heirs to mortgage or sell assets they bought with their inheritance to cover the taxes.

While we can’t make a child or grandchild manage their money wisely, there are some techniques clients have used that have set the next generation up for success while slowing down how fast the money is spent. In this article I will be highlighting a few of our clients’ favorite techniques and the benefits of them. Of course, if you want to discuss which of these might be best for your specific situation, please give us a call to set a time we can sit down together and really discuss your specific situation.

One of the techniques we have been using, which we have found to be especially good for younger heirs, is an income-matching trust. The way this works is that the person you have named as trustee will match a certain percentage of the beneficiary’s income up to a set limit. For instance, you could say that the trust will pay fifty cents for every dollar of income a grandchild earns starting at age 22 up to a cap of $50,000 per year. So, if the grandchild got a job earning $50,000 per year, they would receive an additional $25,000 per year from their trust. Many clients like this type of plan because it incentivizes heirs to work for their inheritance and by its very nature guarantees the money will last for several years. However, you have to understand your heir’s situations as you would not want to set this up for your child who is a stay-at-home parent.

Another technique that has been popular lately is to set up a monthly income stream for a child with the major portion of their inheritance being held to help prepare the child for retirement. For instance, you might leave a child a monthly income of $1,500 indexed for inflation (keep in mind a good portion of this money may be tax-free), with the balance of their inheritance being paid in several annual or monthly installments starting at age 55 or 60. Again, the plan here is to help a beneficiary get ahead while younger while guaranteeing they will have something for when they are older. This is especially helpful if you know your children are getting close to retirement age and haven’t really gotten around to preparing for those years.

These are just a couple of the many techniques we have seen clients using to really make their legacies lasting ones. If you or someone you know are interested in discussing the options available for your estate plan, please give us a call to set an appointment.

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