Think Like a Child

You thought I wasn't going to post today. Gotcha!

One thing my clients sometimes have a difficult time with is choosing the age at which their minor children will receive their inheritance. The issue typically arises when a young couple is creating their estate plan and wants to keep their young kids from receiving large sums of money before they are mature enough to handle it. Delaying the distribution until the children reach an age at which their parents believe they are responsible enough to handle the money is wise and a common approach.

The obvious question, though, is how do parents decide when their kids are responsible enough to receive their inheritance? The parents have already died, so they aren't around to make the decisions about when distributions are made.

There are myriad approaches to this, so it doesn't make much sense to try to describe them all in one blog post. Instead, below are a few factors to consider when choosing the age of distribution to your children:

1. The personalities of your kids -- Clearly, if your kids are still very young you cannot judge whether they are going to be responsible when they get older. But, if you have middle school age or high school age minor children, you may have some idea of how responsible your children are. Obviously kids of that age don't tell their parents everything, but you're probably vaguely aware of the way your kids behave when they are given responsibilities at school or at work.
2. Your kids' education -- Many parents want their children to have the option to go to college. Some parents want to take away the financial burden of paying for an undergraduate or graduate degree. Others think their kids should experience working their way through college in order to prepare them for life in the working world. Some don't care whether their children go to college at all. If your children do go to college, do you want them to have access to a large pool of money for their daily activities or would you rather they only get distributions from a trustee?
3. Inflation -- Money loses its value over time. It's a fact. Just in the last 30 years, the U.S. dollar has decreased in value compared to the global market. The Euro has even overtaken it, value-wise. A $100,000 distribution today could be worth $110,679.55 in five years. If you decide to distribute a specific dollar amount to each child at certain ages, do you want that amount adjusted for inflation between the time you set the amount and the time of the distribution?

This is not an exclusive list, but these are some of the more common factors my clients use in determining when their minor kids should receive their inheritance. Ask your advisor to help you work through the issue and check back here to find out more about a few specific approaches to this important issue.Publish Post

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Lawyer Joke of the Day:

Q: What is the difference between a catfish and a lawyer?

A: One is a slimy, scum-sucking bottom-dweller. The other is a fish.