Ask Stacy: I’m Afraid to Leave an Inheritance for My Kids – What Should I Do?

A reader wants to leave her money to her kids, but she’s afraid they’ll blow it. It’s a common problem, and one without an ideal solution.


What’s the one document many Americans should be dying to have but often don’t bother getting?

A will.

Any financial adviser worth his salt will insist you have one. He’ll say things like, “It doesn’t cost much, takes only a few minutes to prepare and will save both money and hassle for those you leave behind.”

All true. What’s also true is that planning for one’s demise sometimes can open a can of worms. Case in point: this reader question.

Stacy, I have a good problem to have, but I need some advice.

I am a 50ish, single female with some health problems. My worth is slightly over $2 million and I’m still working. My problem is, I need to make a trust or something. I am good at saving money and working but have very little financial expertise otherwise. A family member has been helping me.

Problem: I have two children, one in college and the other a high school grad this year. Neither would be able to manage their money if something happens to me. The college student’s boyfriend would spend hers, and my son would just blow his. I would like to leave the money in a trust for them, but I don’t know at what age I should allow them to have the money. Should it be in a lump sum at a later age, or should it be given in stages?
Thanks, Susie

This is a common problem, even among those not as well off as Susie. When you make a will, you’re deciding who’s going to get your money in the event of your death. But if you have irresponsible adult heirs, your demise could have an unintended consequence — the death of your life savings.

I’ve had personal experience with this problem. But before I tell my story and answer Susie’s question, let’s understand a few estate-planning basics.

A will vs. a trust

A will is a simple document describing, among other things, how you’d like your stuff distributed upon your death. If you don’t have one, a status known as dying intestate, your possessions generally pass to your spouse, then your nearest blood relatives. If you don’t have any, they’ll go to the state.

To make sure everything’s on the up-and-up, distributions by most wills are overseen by a court. This process is called probate.

A trust is different. It involves three roles:

  • The trustor — the owner of the property, who transfers it to …
  • The trustee — the person who takes care of the property for the benefit of …
  • The beneficiary — the person or people who will eventually receive the property.

If Susie forms a trust, she’ll be the trustor. Whomever she names to take care of her money — maybe a family member — will be the trustee. Because her kids will ultimately get the money, they’re the beneficiaries.

There are two types of trusts. A living trust is created while the trustor is still alive. A testamentary trust is created through a will after death. Some trusts can be changed (revocable) and some can’t (irrevocable).

Why use a trust?

We’ve already explored one reason to use a trust — to name a trustee who will take care of the money until the beneficiaries are responsible enough to manage it. A second common use of a trust is to bypass probate, the sometimes expensive and time-consuming process of court supervision. Finally, trusts are often used to bypass estate taxes.

Until Susie’s estate reaches a certain level, currently $5.43 million, she doesn’t have to worry about federal estate taxes. Whether it’s worth the cost to establish a trust to bypass probate depends on the laws where she lives, as well as other factors. She should consult an estate-planning lawyer for more advice about that. But she obviously has a desire to take care of her kids.

The problem with the trust solution

My mother died in 2004 and left her estate to my father. Before he passed away in 2009, he was facing the same problem as Susie. He wanted to leave his assets to me, my older sister and my niece. While he didn’t worry about leaving a lump sum to my sister and me, he was more hesitant when it came to my niece. She was an adult but, in his opinion, not yet responsible.

So he used a will that included a testamentary trust. Upon his death, part of his estate went to me, part to my sister and part went into a trust for my niece. My sister and I were named co-trustees, and we were given the authority to give the money to my niece whenever and however we deemed fit.

This was a good solution for my dad. For me, my sister and niece? Not so much.

When my father died, my sister and I stood between my niece and what she regarded as her rightful inheritance — not a pretty picture. I won’t go into detail, but you can probably imagine what it was like trying to juggle my father’s wishes and an impoverished niece who wanted her inheritance.

I could see this problem coming and begged my father not to leave my sister and me in this position. But his options were limited.

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,434 more deals!