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.

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  • Ted Jones

    Great article! In Texas a basic Will can take advantage of the State’s simplified probate system to save thousands of dollars and a tremendous amount of time.

    • Melissa Greene

      Your article was very helpful, Stacy, especially your
      explanation of a will vs a trust. That has always confused me. I have been
      procrastinating for pretty much the same reason as Susie. I am a single,
      professional Mom with kids and a partner. My partner is like a father to my
      kids and we plan to marry one of these days. I am not wealthy but I do
      have savings and some land I inherited from my parents. And an ex-husband
      who must not ever be allowed to manage any of it for my kids. (They would see
      less of their inheritance than they see of their father.) Not only have I
      been procrastinating because I was confused between a will and the living trust
      you talked about, but I didn’t know how to set it up so that it would be held
      for college or until they are mature enough to manage it responsibly. I worry that one of my kids may not be headed
      for a traditional college which is fine but if life works out to where I am not
      here to guide him, how do I decide when he would get his share. How do I come
      up with various contingencies? How do all these contingencies get written
      into a will? I can’t even decide if I should get married because I don’t know
      if that will complicate the situation even more! (If I do get married
      without a will, would my kids or my partner get my assets if anything happens
      to me?)

      Which is why I am replying to you, Ted. You mentioned Texas and I live in Texas.
      I moved to here after my divorce. You mentioned a “basic” Texas
      with regard to Susie from the article and said a basic will can simplify
      probate and make it much less expensive. Sound great! To me, my situation seems
      even more complicated than Susie’s, though I don’t have as much in the way of
      assets. Yet, there are millions of other divorced parents and blended families so they must be
      doing something. But what, exactly? Who is a simple will actually for— someone who’s unmarried
      or still married to the other parent of their children? Someone
      who does not have much to leave their children? Susie had kids and assets but
      was unmarried, or so it seemed. Hopefully I’m wrong but it seems to me that if you have
      to come up with contingencies for when you kids can get the money or not and someone
      else has to be in charge of it and keep it from being squandered by an ex-spouse, then
      maybe it may not be basic. Am I just worrying too much and making this
      too complicated? I know people with blended families and the like who just used a basic
      will they got from TV and they seem fine with it but I don’t know if that is good enough for
      my situation. True or not? Would I even know if I did a TV will that was not actually good
      enough, or would my family discover after I was gone. Yes, I worry too much!
      Thank you for any advice you can give!

      • Melissa, all of the issues you have raised are not uncommon and an be addressed in the terms of a trust. Very few things are more flexible than a trust. Whether the trust should be set up within your Will or set up as a living trust depends on what state you live in. Your question about marriage also depends on what state you live in.

  • catty

    You can set an age …say 40…to receive the monies. The deciding factor would be they can not be unemployed for more than 2 months until they are 45 in any given year.. or they lose the benefit of the money and it goes to a charity of your choice……a job is a responsibility and if they can’t handle a job than they will not be able to handle money. If health issues factor into that unemployable time the year starts after there work return unless for a severe disability not of there doing.

  • Tom

    Whatever course you select, be sure to discuss things with the trustee or maybe have a nonbinding letter to the trustee explaining some of your thoughts and wishes. As a successor trustee for my aunt (never married, no children) I followed the trust to the letter but had no idea of her assets or bills. It was quite an exploration finding all that out. Some came into the trust yet other assets did not as they were survivorship with certain individuals. There was a bank named as a substitute trustee if no one accepted the job, but as noted in the article that can get expensive (just minimal legal work ran into about $1500 as it was). Even a fairly “simple” one can take well over a year to finalize so I’d suggest not putting any stipulations that could drag it out longer if you can avoid it.

  • MayB

    Glad this subject came up, as I have a question that is similar in nature that I have been concerned about, and hopefully it can be answered.
    I have three adult children, and I have opened three separate savings accounts, all in my name, POD (Payable on Death) to each of them individually. It is my understanding (from the two different banks that I have asked this question to) that the monies in these accounts will go directly, without any need for legal litigation, nor need for a lawyer, nor a will to be ‘read’, to the beneficiaries — I would presume upon presentation of my death certificate, and verification that they are the rightful owners. My question: is this information correct?
    While I do have a will, it primarily addresses the house and other belongings. The total for all my assets is under one million, so we’re not talking lots of money.

    • While I’m no lawyer, MayB, I’m nearly certain your information is correct.

      • MayB

        Thank you SO much! It is most appreciated….and helpful!

    • That is correct. Pay on Death accounts and accounts with beneficiaries, like retirement accounts, do not go through your will. They will go direct. They are not a substitute for a will, but can be used in conjunction with one.

      • MayB

        So very glad to know that, and I really greatly appreciate your taking the time to respond. Peace of mind is a good thing!

  • Ann Stone

    For the life of me, I’ll never understand why a parent would begrudge a child his inheritance based on what they think they’ll do with it after they’re dead. I mean, if your kid is a total jerk (who will use the money to harm others), I get it. Otherwise, it is obvious that you’re just a power tripper (who uses your money like a lion tamer wields a whip) who should be (& have been) a better parent. If you kids are irresponsible and/or jerks blame yourselves.

    • It has nothing to do with power. It has everything to do with not wanting the money to harm your child and to help for as long as you can.

    • Jason

      No child is owed an inheritance. The money belongs to “Susie” not the children. If she is concerned her children may squander that money she is free to give to someone more deserving.

      • Ann Stone

        Damn! Glad my family is not so dysfunctional & hateful. Our family will, of course, make mutually agreed upon charitable donations, but beyond that my son will inherit everything, because he is my son & I love him.

        • Jason

          Hateful? I have a great relationship with my parents. Growing up I was never promised an inheritance and I have never expected one. What my parents do with their money is their business, not mine. If it get an inheritance fine, if not, that is fine too.

          Sometimes the loving thing to do is to make a child stand on their own two feet and earn a living on their own.

  • Joe Smith

    Consult a good lawyer. He or she should have the best solution for you. Consider your total net worth. The expense of a lawyer is vary small by comparison. In this way you can rest assured that your legacy will be dispersed as you wished.

  • ModernMode

    MAKE A WILL. My uncle died without a will. He has 15 heirs, who cannot agree on anything. The house still sits like a museum 2 years later. It will stay that way until one them sues in court to get a judge to order a sale.

  • Shonay

    your niece should have been grateful she was even named in your father’s will. Most do not leave anything even to their own children anymore.

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