When is the right time to talk with heirs about inheritance?  It will probably be awkward because the conversation involves both money and death, and most people prefer not to think about either. Sometimes, an heir’s expectation of an eventual windfall can take some urgency and motivation out of saving and career development. However, the wealthy often want their heirs to have enough to live comfortably, but not so much they do not have to work at all.

Is travel a part of your retirement plan?

Properly managing wealth is often learned throughout a lifetime, but when an inheritance is suddenly thrust upon someone, it often does not last. Although it seems a lottery win should ensure financial security, some studies show as many as 70% of lottery winners end up broke or filing for bankruptcy. A sudden windfall from inheritance can have the same effect and a long-term plan may help convert a windfall into a lasting legacy.

A family meeting helps children and grandchildren develop a plan and identify someone they can continue to work with once the current manager of family wealth is no longer living. It can serve as an introduction to the professionals currently advising the family, such as an estate planning attorney and a trust or wealth management officer. Regardless of whether the next generation chooses to stay with these advisors, knowing who they are and how to contact them can create a more fluid transition.

Should a trust be considered for adult children?

Traditionally, trust services are recommended for estate management in the case of incapacity, to coordinate assets for a surviving spouse or minor children. In these situations, a professional can take responsibility for management of assets. However, trusts have additional benefits, which can make them an appropriate option for managing an inheritance for an adult child. These benefits can include:

Professional investment management.

A significant securities portfolio is wonderful, but it requires serious care and attention. This is especially true when economic growth is weak, interest rates are low, and taxes are uncertain. How can beneficiaries receive adequate income without putting capital at risk?  What is the best stock and bond balance?  How can portfolio management be more tax efficient? Corporate fiduciaries address these sorts of questions.

Creditor protection.

One of the most frequent questions we hear is, “How can I keep my money and property out of the hands of my son-in-law (or, sometimes, my daughter-in-law)?” The inquiry is understandable, given the high divorce rates in this country. Our answer: Use a trust to own and manage the property, and give your heir the beneficial interest in the trust instead of the property.  A carefully designed trust plan can protect assets in divorce proceedings, and protect from improvident financial decisions by inexperienced beneficiaries.

Future flexibility.

Parents typically have a fuzzy definition of treating their children “equally.” Each child’s financial needs may be out of proportion to their siblings. By utilizing a trust for wealth management, one may give a trustee a similar level of discretion, defining “equal treatment” on something other than gross dollar terms.  The trust document may identify the goals of the trust and provide standards for measuring how well each beneficiary’s goals are being met.

Capital foundation. A trust may provide a capital foundation to avoid successive imposition of transfer taxes, and thus keep more hard-earned wealth in the family.

Discussing inheritance may feel awkward for those whose wealth is self-made, and never received any inheritance, as they have no personal examples to draw from. An Arvest Wealth Management Trust Officer can be especially helpful in these situations to fill in some of the blanks and prompt common questions, which can help prevent misunderstandings later. These questions can include:

  • Will any beneficiaries want a full inheritance immediately, and object to having a single trust continue to manage the assets?
  • Will any children object to the costs of management, or object to compensating a family member for taking on the trustee role?
  • Will there be any objections to an unequal distribution of assets?
  • What are the hopes the inheritance will be used for?
  • Will all or a portion of the estate be put toward philanthropic goals?

A formal family meeting can create an acceptable environment to ask questions and raise objections. Often, questions may come up around the sentimental value of items, or even who will become the new caretaker for pets. If you are considering steps to prepare your heirs, please consider us a resource to draw experience from.

This content has been prepared by The Merrill Anderson Company and is intended as a general guideline.

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