You worked hard over your life to build up your wealth. It makes sense if you have some hesitations or fears around how to pass it down, or who to pass it down to.
Over the years, our clients have shared with us many of the same fears. We find most of these stem from one overarching problem: being afraid to have tough conversations about money. This fear inevitably leads to miscommunications and unprepared heirs.
We discuss how to overcome this fear, and more, below.
I’m afraid of creating a sense of entitlement in my heirs.
It’s a tale as old as time: the trust-fund kid who knows they have a large inheritance coming their way has no motivation to do anything. They make sure to do the bare minimum in order to receive it, but in the process, ignore opportunities to learn new skills, explore their interests, or get the most from their education.
You can actually put together a plan that helps avoid this outcome. An experienced estate planning attorney can help you craft a plan that includes incentives for your beneficiary, such as only being able to qualify to receive trust money if they graduate from an accredited college or university with a certain GPA. You can also include restrictions on what the money can be used for, such as tuition, starting a new business, or purchasing a home. This would prevent your beneficiary from spending the money or frivolous items.
On the other hand, if the thought of one of your beneficiaries receiving your money gives you tremendous anxiety, you can leave the decision of how much money they’ll receive and when they receive it to the discretion of a trustee. This trustee should be someone who understands your concerns about discouraging an entitled mentality. They should encourage your beneficiaries to develop a strong work ethic and become productive, contributing members of society.
I’m afraid my heirs will squander their inheritance.
Unfortunately, your heirs may not be as frugal with your wealth as you’d like them to be.
As mentioned above, you can include provisions in your estate plan that list exactly what the money you’re leaving your loved one can be used for. If you want to see your loved one get a good education or put aside money to start a business, you can restrict the use of the money to those purposes. Or you can select successor trustees who will make trust distributions that align with your long-term objectives for your money and your loved ones. So if your heir wants to buy an extravagant sports car, they’ll have to look elsewhere for that money.
I’m afraid that my heir will be easily influenced.
There are, sadly, people in the world who look to take advantage of others. While your loved one might be incredibly level-headed and frugal, sometimes, it can be hard to say no to a partner who wants to go on expensive trips or a friend who is always desperate for help.
In addition, with about half of all marriages ending in divorce, potential gold diggers may take a special interest in your heir if there’s a possibility of a large divorce settlement.
Through proper drafting, an experienced estate planning attorney can not only restrict how your loved one accesses the money you leave them, but also protect it from creditors and predators.
I’m afraid that giving more money to one of my heirs will foster sibling rivalry.
One of the difficult decisions you’ll have to make is whether or not you want to treat your children or grandchildren equally or fairly in your estate plan.
Treating your heirs equally means they all receive the same amount of money. Treating your heirs fairly means they receive money and property based on their individual needs and situations. The answer to the “equally or fairly” question depends on your unique circumstances, intentions, and beliefs.
Some people think it’s crucial that everyone in the same generation (children or grandchildren) be treated the same to prevent conflict. Others believe that because everyone is different, each person in a generation should be provided for in a way that gives them all the same access to opportunities and advantages in life. For example, one child may make more money than a sibling, or one grandchild might have special needs. These differences might require different amounts and types of inheritances.
I’m afraid that talking about decisions I’ve made about my wealth with my family will prevent me from making changes in the future.
Telling someone about your plan doesn’t impact your ability to change your mind, but the type of plan you create may limit your ability to make future changes. A revocable living trust or a last will and testament can be changed at any time up until you’re incapacitated (unable to make decisions for yourself) or you die. On the other hand, there are irrevocable trusts that, while offering increased asset protection and potential tax benefits, may be more complicated or problematic to alter if you change your mind in the future.
Although having conversations about your financial wishes with your family can be scary, it doesn’t take away the importance of being open and honest with them. We generally recommend that families take the time to meet annually to discuss their wealth in case a change has occurred. It’s better to let them know of any decisions or changes you’ve made now, rather than risk it being a surprise later.
I’m afraid I’ll run out of money.
Money represents, for many people, a sense of security. Without it, you may feel vulnerable or worry that the money you saved for retirement may run out. While this scenario is a real possibility, working with an experienced financial advisor can help you get ahead of this fear. They can look at your current income, savings, and expenses to create a budget and investment strategy that meets as many of your future wants and needs as possible.
Overcoming Your Fears About Money
The two most important steps to overcoming fears regarding money and inheritance are 1) Creating an estate plan and 2) Having an open and honest conversation with your loved ones about it.
To help you prepare to create your plan and discuss it with your family, consider your answers to the following questions:
What does money mean to me?
Am I comfortable telling my family about my plans for my wealth?
What do I want to teach future generations about money?
How can I help future generations develop financial competency?
Am I concerned that I am going to run out of money?
Do I worry about creating an entitlement mentality among my children, grandchildren, etc.?
If I leave a large sum of money, do I think future generations will squander it?
Do I think outside influences will take advantage of my children and grandchildren if I leave them a large sum of money?
Do I want to treat my children and grandchildren equally or fairly?
Your answers to these questions will bring clarity to your fears, attitudes, and goals about your wealth and how you’d like to pass it down to your loved ones.
Additionally, discussing your philosophy about money with your loved ones will allow them to know what to expect after you’re gone instead of being caught by surprise.
We can help you discuss your options for protecting your wealth. Call Santaella Legal Group, serving San Ramon, Danville, Dublin, Pleasanton & the Tri-Valley area, at (925) 831-4840.