Creating or updating your estate plan can feel overwhelming. However, a successful plan boils down to two essential questions: Who will receive your assets when you pass, and how do you want those individuals or charities to receive them?
Ways to Distribute Your Money and Property
Outright Distribution
One straightforward option is giving your beneficiaries their inheritance outright. After your death and the administration process, your beneficiaries receive their assets (such as bank accounts or property) with no strings attached. This option provides them maximum freedom—they can keep, spend, or liquidate the inheritance as they see fit. Outright distribution is simple to include in an estate plan and easy to administer, as it only requires naming your beneficiaries in your will or trust.
However, this ease comes at a cost. If a beneficiary has financial troubles, is going through a divorce, or struggles with managing money, the inheritance could quickly disappear. Additionally, minor children or beneficiaries with special needs should never receive an outright inheritance.
In Trust
Another option is holding your beneficiaries’ inheritance in trust. Whether you choose a will or revocable living trust, you can set terms and conditions that must be met before they receive their inheritance. Here are some examples:
Age-Based Distribution:Â You can release portions of the inheritance as beneficiaries reach certain ages (e.g., one-third at 30, half at 35, and the remainder at 40). This staggered approach helps them learn from early financial mistakes before receiving more.
Milestone-Based Distribution: You can tie the inheritance to significant achievements, such as earning a degree or maintaining a stable job for five years. This option allows you to impart your values but can be tricky if the milestones aren’t met, or the beneficiary needs funds earlier.
Event-Based Distribution:Â You can allocate funds for specific life events, such as weddings, home purchases, or starting a business. This ensures that the inheritance supports meaningful experiences, alongside other trust distribution strategies.
Discretionary Trusts:Â In a discretionary trust, the trustee has full authority to decide when and how much the beneficiary receives. While restrictive, this approach adapts to changing needs and protects the inheritance from creditors or divorcing spouses.
Special Needs Trusts:Â If your beneficiary receives government benefits due to a disability, you can use a special or supplemental needs trust to preserve their benefits while allowing them to benefit from the inheritance.
Deciding on the Right Method
Choosing how to leave an inheritance depends on the needs of your beneficiaries and your desired outcome.
Charitable Giving: If you’re leaving assets to charity, an outright gift is typically preferred, especially if the charity has specific goals. However, a charitable trust can be useful for meeting certain tax objectives.
Minor Children:Â Inheritances for minors are best left in a trust since minors cannot legally manage assets. A trust allows you to select a responsible person to manage the funds, avoiding court-appointed guardians.
Adult Beneficiaries:Â For adults, consider factors such as their ability to manage money, the likelihood of divorce, high-risk professions, and government benefits. A trust may be more beneficial to protect the inheritance.
Surviving Spouse: If married, you may wish to leave everything to your spouse outright. However, consider the potential of remarriage or gifting to new partners. If this concerns you, placing restrictions on your spouse’s inheritance might be wise.
We're Here to Help
Estate planning involves many important decisions, and we’re here to guide you through the process. Whether you need to start an estate plan or review your current one, we can help ensure your wishes are honored and your loved ones are protected.
Comments