At the climax of the 1988 Disney film Who Framed Roger Rabbit, Roger reads a letter he wrote to his wife: “Dear Jessica: How do I love thee? Let me count the ways. One one-thousand. Two one-thousand. Three one-thousand. Four one-thousand. Five...?”
How many ways can you count that you love your children, grandchildren and other heirs? People who take good care of their children generally take good care of their money, and people who take good care of their money generally take good care of their children.
When you think about influencing your heirs, what does that look like?
Money can bring about both “good” and “bad”, depending on how one uses it. So you can imagine how parents and grandparents to try to make the best decisions for their heirs regarding their inheritances. A recent Forbes article titled “What Can We Do With Money For Our Kids?” explores a few tools that may help you think about what could work for you and your heirs.
As an alternative to gifting money outright to children or grandchildren, the article explores some of the methods, including: Roth IRAs, 529 plans, annuitized gifts, and even UTMA/UGMA accounts. While there are many wealth transfer tools and methods, the key is to ask yourself a few important questions upfront.
For starters, what is the purpose of your wealth transfer? Is it education? How involved do you want to be? Do you have specific educational purposes in mind and, perhaps, even limitations? After all, who wants to facilitate a perpetual student?
On the other hand, would you prefer flexibility beyond education alone? What about providing some assistance should your younger loved one ever need a home loan, capital to start a business, or other opportunity to get a leg up? However, could “bailing” a younger loved one out of a bad situation deprive him or her of some valuable life lessons? There is something to be said about the school of hard knocks.
Oftentimes a trust arrangement is an excellent solution for wealth transfers to a younger generation, whether funded now with gifting or later on through inheritance. With a trust you can, with far more particularity and power, articulate both your concrete hopes and goals as well as spell out the specific limitations behind the gift or inheritance. In addition, you may appoint a trustee to stand by and oversee the whole process in your stead.
If you want to ensure that your transfers are a blessing and not a curse, then it will take some legal work to get it right. You will need competent counsel to help you sort through the many legal options available and to chart a course to get there. Ultimately, however, before engaging such counsel, take time to consider your heirs, review your assets and consider your wealth transfer goals for both.
Reference: Forbes (December 23, 2013) “What Can We Do With Money For Our Kids?”
Image Credit: HotShot. Image of letter reproduction used with permission of the creator.