I chose the photo above to emphasize the importance of setting your kids up for success.
As an estate planning and probate attorney, I’ve seen adult children who have never had to work a day in their lives because they always had their parents’ money to rely on. This might be okay if you are absolutely sure about the following:
- That they will not become addicted to drugs or alcohol.
- That they will have enough money to provide for their needs during their entire lifetimes.
- That they will not turn into lifeless ghosts of people who lack any sense of purpose or passion.
- That they are prepared to handle a large amount of money.
I rarely see inheritances work well.
Instead, I’ve seen adult beneficiaries ruin their lives with drug abuse and reckless living.
I’ve seen kids fight with their parents and with each other over inheritances. (Pure greed can take over in families.)
I’ve seen successful families in which the kids seemed like frail flowers who were scared to take any risks.
And I’ve seen 58 year old beneficiary of a trust who, after never having worked for his life, faced the reality that the trust was going to run out in the next year or two … and he would have to get a job for the first time in his life.
When I asked him about this, he said his plan was to live well for a couple more years and then die … at age 60 or 61. Wow!
After having been an attorney for almost 20 years, I’ve come to the conclusion that there are three workable solutions to passing wealth to the next generation:
Solution #1: Distribute The Money Over 5 Years
If each child is going to receive less than $500,000, distribute it in a couple of chunks over a period of five years. The first chunk will be squandered. And it takes about five years for someone to make the necessary changes to be able to handle an inheritance. So, there is a much better chance of success when the next allotment is given after five years.
Solution #2: Have a Corporate Trustee
Assuming there is at least $500,000 per child, have a corporate trustee. You could provide for very conservative distributions (in other words, only if the child absolutely needs the money). But otherwise the money can be loaned on terms similar to what a bank would require.
If you opt for this approach, you could have all the money remain in a family holding company because you don’t necessarily need to divide it according to the number of kids.
Solution #3: Give Some, Donate The Rest
You could also do what some well-known billionaires have decided and give a couple million dollars to each child, but donate the rest.
These three options work because they do not remove the incentive for the child to remain productive and take personal responsibility (which is the Key #6 to a family’s success).
If you’ve been living on a trust and have never had to work a day in your life and you’re in a situation where that money is about to run out, give me a call at 602-443-4888. I won’t give you a sales pitch. I’m just tired of seeing sloppy Wills and Trusts, and after handling so many family disputes and disasters, most of it could have been avoided with a little forethought.
If you’re in that situation or if you know somebody in that situation, remember that this life you have is beautiful, it’s short, and it’s not always comfortable but it’s never too late to start.