The Mistake of Leaving an Inheritance Outright to your Children
Many of our clients believe that a simple will and beneficiary designation on all their financial accounts is enough to distribute their wealth to their children at death. This is a mistake.
No matter how strongly you believe you have a simple situation, leaving an inheritance outright to your children is usually the biggest mistake you can make with your estate planning.
Let me share with you the story of Jane and her three children, John, Joe, and Bill. Jane’s husband passed away many years ago and left everything he owned to Jane. Several years later, Jane updated her will to leave everything to her three children. She made sure that her investment account, IRA, and bank accounts listed her three children as equal beneficiaries. Jane felt that this was all that she needed to do to make sure all her affairs were in order.
A few years after updating her will, Jane passed away. The accounts transferred according to her beneficiary designations and the will was probated according to law, distributing all her assets equally to her three children.
Besides a 14-month delay and $15,000 in probate expenses, Jane’s wishes were followed. Each of her three children received an equal share of her estate. However, what happened next is an all too common occurrence:
- A few months after receiving his inheritance, John went through a divorce and lost half of the money to his ex-wife.
- Joe paid a high rate in taxes to liquidate his share of the IRA, forfeiting the potential growth that the fund would have achieved over the course of his lifetime.
- After being sued by various creditors at the time of Jane’s death, Bill lost his entire inheritance to creditor claims and lawsuits.
The reality is that the average inheritance is spent within 17 months of being received. Inheritances are lost due to divorcing spouses, lawsuits, creditors, bankruptcy, tax claims and other predators. In addition, inheritances are lost to irresponsible spending and unknowingly withdrawing an IRA inheritance too quickly, resulting in severe tax penalties.
For this reason, we routinely advise our clients to establish a trust-based estate plan with lifetime asset protection for the adult children.
To achieve the assurance that your childrens’ inheritance will be protected, contact our office at (513) 241-0400 or use the contact form available on this website to schedule a time to speak with one of our Estate Planning attorneys.
We look forward to hearing from you!