Moral lessons abound in the Bible. One story that is referenced often in estate planning is that of the Prodigal Son, where a father makes decisions about his two sons, one who is prodigal, and the other who is faithful and hardworking.
The Kansas City Star’s recent article, “A plan for preventing children from squandering an inheritance,” explains that the prodigal son demanded his inheritance, then wasted it and returned home in disgrace. However, his father celebrated his return. The faithful son was angry about the celebration because his dad hadn’t done anything like that for him, but the father reminded the faithful son that he would inherit the father’s entire wealth because of his faithfulness.
This brings us to two critical questions that many families must address when developing an estate plan: Will my kids squander their inheritance, and should they each get an equal share of my estate regardless of their relationship to the parents? For children, an inheritance can be like free money that they did not earned. In that case, they might easily blow it without thinking about their future needs. A good solution is to establish a trust either while living or at death (testamentary trust through a will) that places restrictions on and controls the timing and amounts of the estate that children can receive after death.
A common schedule is outright distributions of one-third of the estate at age 25, one-half of the estate at age 30, and the rest at 35. Hopefully, by that point, the child will be financially mature and not have creditor issues. This also better assures that the family money stays in the bloodline and out of any unintended recipients, like ex-spouses or in-laws.
The Prodigal Son parable also discusses the rights of beneficiaries. According to Jewish laws of inheritance, found in Deuteronomy 21:17, the firstborn son receives two-thirds of the inheritance, and younger son receives the remaining third. The 66-33 split came with the requirement that the oldest son takes care of the aged parents.
If you die without a will today, the intestate laws of the state will apply. For example, in Kansas and Missouri, the rules say that children receive equal shares. However, if you die with a valid will or a trust, the intestate rules don’t apply. The will or trust states how the shares to children are to be allocated.
You may have children who are careful about money or one or more kids who spend whatever money they get, as fast as they get it. The best solution is to sit down with an estate planning attorney and create a plan that divides your estate in a way that suits your children’s ability (or lack thereof) to handle money and other assets. There are many different ways to accomplish this, but they all require advance planning and the appropriate documentation.
At Legacy Counsellors, P.C. we recommend a few different techniques to protect your heirs or children from spending down all their inheritance quickly, if that is a concern. Please call our office today to schedule an initial consultation. (413) 527-0517
Reference: The Kansas City Star (November 30, 2016) “A plan for preventing children from squandering an inheritance”