Most people will receive an inheritance at some point in their lives. Whether the amount is $10 million or $10,000, not everyone is prepared to handle a sudden windfall of cash. A common misconception is that when creating a will, parents have no choice but to leave their money outright to their adult or minor children.
However, that’s not necessarily the case. Parents can utilize a testamentary trust—a trust written directly into their wills—to hold funds back and ensure the money is used for specific purposes, such as education, housing, or other needs.
For guidance on setting up a testamentary trust or crafting a comprehensive will, an Estate Planning Attorney Woodbury, MN can provide advice tailored to your unique needs. This approach allows parents to protect their legacy while ensuring their children benefit from the inheritance responsibly.
WHAT AGE, IF EVER, IS IT APPROPRIATE TO LEAVE YOUR CHILDREN A LARGE SUM OF CASH?
If you’re nervous about when your kids should receive your money, you aren’t alone. There is increasingly a realization that twenty-somethings are not equipped to handle large sums of cash. This article references a study by U.S. Trust in which two-thirds of those polled were unsure whether their children would act responsibly with their inheritance.
When you write your will, there is always an option to leave your estate to your heirs in trust rather than outright. This might be because you are worried that someone will take advantage of your spouse financially, or because you feel that your children may not handle a large sum of money appropriately. You may also feel that the funds should be used for something specific — perhaps for medical care, college, or just for financial emergencies. Increasingly, parents want to simply keep the cash out of their children’s’ hands until the child has reached a certain age where they will be better able to manage these funds for their own benefit.
I’ve noticed that the age an attorney recommends for a beneficiary to receive their inheritance often correlates closely with the attorney’s age. Younger attorneys tend to be more confident that beneficiaries should have access to their money earlier—often around age thirty-five. Older attorneys, on the other hand, frequently suggest a final distribution age that is much later, sometimes extending into the beneficiary’s forties.
Deciding when and how to distribute assets is a personal and complex decision, and there’s no one-size-fits-all answer. Parents often grapple with the question of fairness when dividing their estate. Should each child receive the same? Learn more about this important topic by visiting our page: Should Each Child Get the Same?.
THE APPROPRIATE AGE OF COURSE DEPENDS ON THE BENEFICIARY
How has the beneficiary managed their money in the past? Are there concerns about substance abuse, gambling, or other financial risks? Does the beneficiary have alimony or significant financial obligations that need to be considered? Is the beneficiary a business owner with a high risk of being sued? These factors and more should be carefully evaluated when deciding when—or if—a beneficiary should have ready access to funds from the trust you create in your will.
One critical consideration is avoiding naming minors as direct beneficiaries, as this can create unnecessary complications. Learn more about why you shouldn’t name minors as pay-on-death beneficiaries.
For these reasons, I tend to favor setting a later inheritance age for beneficiaries, ensuring their financial future is safeguarded.
Having worked as a professional trustee for a number of years, I have seen, repeatedly, what happens to younger beneficiaries who receive a windfall of cash. There are obviously those that handle it responsibly, but when you are talking about individuals between eighteen and twenty-five, the outcome is not often positive. I have seen young people with access to a few hundred-thousand dollars lose the whole thing in a matter of years. I have also seen young heirs lose motivation to go to school or to find a job, since they don’t have to work for their financial security. You can imagine what their life looks like when the money runs out.
MY RECOMMENDED AGE TO RECEIVE AN INHERITANCE
Personally, I think a great way to structure your testamentary trust is to allow the trustee to make distributions for school and for medical costs at any time. When the beneficiary reaches a point of mental, emotional, and professional maturity, this is a great time for him or her to have access to the rest of the money. My opinion (generally) is that this age is in the beneficiary’s thirties . . . this provides enough time for the child to have his or her life, education, and career in order. The beneficiary may have priorities at this point that go beyond their own needs, such as purchasing a home or caring for children. And don’t forget, there is nothing wrong with giving your children and grandchildren an early inheritance, whereby you can supervise their investments and also receive the benefit of watching them enjoy it.
Though you will need to be extra careful of gift tax considerations when making lifetime gifts, this option can create a lot of enjoyment for both the person making and the person receiving the gifts. Remember, you don’t have to leave money to a beneficiary outright; you can delay their inheritance to any age you like via a testamentary trust. Talk with your estate planning attorney about concerns you have about leaving funds outright to your children or other beneficiaries; together, you can find a solution that works for everyone, while still meeting your estate planning goals.
Philip J. Ruce creates wills and trusts for families who want to feel secure that their loved ones are cared-for. Philip is a trust and estate attorney based in Minneapolis, Minnesota. Philip is the author of Trustee University: The Guidebook to Best Practices for Family Trustees available at Amazon.com in paperback or Kindle edition (free chapter available here!) He also works with trustees and beneficiaries who need help with their trusts.
