Probably the most enjoyable part of estate planning – maybe the only enjoyable part – is realizing that you’re in a position to leave money and other assets to people you love as well as organizations whose work you admire and support. However, if you are leaving a good of money to a loved one, it’s in your – and their – best interests to make sure they know how to handle that money.
Even if an heir is an intelligent, educated, responsible person, there’s no guarantee that a sudden influx of money won’t throw them for a loop. Whether that’s $50,000 or $5 million, if they’re not prepared to handle it, they could easily spend it all on luxury items or a bad investment or give it to friends and maybe other family members who come to them with hard-luck stories.
Smart strategies for dealing with an inheritance
It’s never too early to start talking to a loved one about how to wisely handle an inheritance. One financial advisor recommends creating “a decision-free zone” of several months to a year before spending any of it. During this time, she advises consulting with professionals like financial, tax and investment advisors.
In the meantime, she recommends keeping the money in one or more bank accounts separate from any joint assets if someone is married. That could complicate things if they later divorce.
Certified financial planners (CFPs) also recommend resisting requests or not-so-subtle hints from others for loans or gifts. Of course, the fewer people your heirs tell about their inheritances, the less chance they’ll have of being inundated with requests.
How to help protect your assets after you’re gone
As you’re developing your estate plan, you can help ensure that what you leave to your children and other loved ones will truly benefit them by providing them with some guidance on how to make their inheritance grow and last. You can also put them in touch with professionals who have helped you.
If you believe that one or more heirs can’t handle an inheritance wisely, you can put their inheritance in a trust that will limit their access to the funds and require supervision by a trustee. It’s wise to find out what your options are.