Most people will receive an inheritance at some point in their lives. Whether this amount is $10 million or $10,000, not everyone is equipped to handle a windfall of cash. There is a misconception that when someone creates their will they have little choice but to leave their money to their adult (or minor) children outright.

That’s not necessarily the case; parents can use a testamentary trust — a trust written directly into their wills — to hold funds back from their kids so that the money may be used for specific purposes.

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 at which an attorney recommends a beneficiary receives his or her windfall is closely correlated to the attorney’s age. Younger attorneys are more confident that younger beneficiaries should have their money — often at age thirty-five or so. Older attorneys feel otherwise, and will often recommend a final distribution age that is much later, perhaps into a beneficiary’s forties.

THE APPROPRIATE AGE OF COURSE DEPENDS ON THE BENEFICIARY

How has the beneficiary managed their money in the past?  Are there any concerns about substance abuse or gambling? Does the beneficiary have alimony or other financial obligations which need to be addressed?  Does the beneficiary run a business that has a high risk of being sued? All these things and more should be considered when determining when (or if) the beneficiary should have ready access to funds from the trust you create in your will .I have to admit that I am biased towards a later inheritance age for beneficiaries.

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

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. You can contact him here.