The Wealth Advisor
Preparing Your Beneficiaries to Receive Their Inheritance
When you hire an estate planning attorney, you are often looking for help with preparing your accounts and property to ultimately pass smoothly and safely to your loved ones. This is a key component of estate planning. An experienced estate planning attorney will put much thought and effort into ensuring that an appropriate estate plan is created using a variety of legal documents including wills, trusts, powers of attorney, and health care directives. These important tools can ensure that what you own ends up in the right hands, at the right time, and with as little cost and delay as possible.
Prepare beneficiaries to receive assets. An often-overlooked aspect of estate planning, however, is preparing beneficiaries to receive money and property. With all of the thought that goes into making sure taxes are minimized, probate is avoided, and accounts and property are protected, few clients give sufficient thought as to whether their beneficiaries have been adequately prepared to suddenly receive large amounts of cash or manage property. Working through the following questions with your beneficiaries can pay huge dividends by ensuring that they are prepared to receive your accounts and property.
Identify successors for a family business. If a family business makes up a large portion of your family’s wealth, have you identified who will continue to run the business if you become incapacitated or suddenly pass away? Will your successor be a family member who has been working in the business, and is this person fully prepared to take over your role? If a family member will take over, does the person understand the extent to which they will manage the business for the benefit of other family members? Or does the successor have expectations about the financial rewards of participating in the business that differ from those of the rest of the family? These questions can cause a great deal of discord within a family if left unanswered.
Consider complicated assets. Perhaps the wealth of your estate is made up of a complicated portfolio of stocks, bonds, cash, and investment accounts. If that is the case, do your beneficiaries understand the basics of investing with these types of accounts? Do they understand the tax implications? Are your beneficiaries used to taking advice from attorneys, financial advisers, and tax professionals, which will allow them to achieve the most benefits from the accounts left to them? Or do your beneficiaries consider such advice needless, expensive, or untrustworthy, and will such attitudes come back to haunt them down the road?
Discuss the challenges of co-owning real estate. If you have a large amount of real estate, farmland, or commercial property or rentals, have your beneficiaries been taught how to manage such properties? Will these properties be passed on to beneficiaries through a trust or through a business entity such as a limited liability company or family limited partnership? If an entity is being used, how has the management structure been set up? Do all beneficiaries understand their roles within the management structure? What if one of the beneficiaries no longer wants to be in a partnership with his or her siblings? Is there a clear path for the beneficiary’s exit from such an arrangement that is fair to both the departing beneficiary and the remaining beneficiaries? Is that exit spelled out clearly in an operating, partnership, or other type of agreement for later reference by your beneficiaries?
Even something as seemingly innocuous as passing on a family vacation property to adult children can pose a significant risk of rekindling old sibling rivalries. Have you and your attorney met with the beneficiaries, either as a group or individually, to make sure your goals and hopes are clear with regard to the property being left to them? What do you hope your beneficiaries will do with the property you leave to them? Have you asked them whether they even want the property, or in what manner they would like to receive it? Many parents have been completely surprised at their children’s responses to these questions.
Consider asset protection. Parents sometimes think that their children are not at all concerned about asset protection and believe their children would be upset if they were left anything with “strings attached” or conditions on how to use the money or property. Imagine the parents’ surprise when the children share their reasons for why receiving an inheritance outright would be a disaster. Parents are not always aware of the marital or financial challenges their children may be facing that have the potential to lead to a significant, if not total, loss of their inheritance.
Gift today rather than at death. In many cases, it makes sense for parents, during their lifetime, to give their children a portion of the accounts and property that they ultimately want to leave them at death so that the parents can observe how their children will manage and use the property. In some cases, parents have learned a great deal about how their children are likely to handle even larger infusions of cash or property from an inheritance after they are gone. On a more positive note, giving children a substantial amount of their inheritance prior to death can provide a valuable opportunity for parents to mentor their children in the appropriate use and management of the accounts and property, preparing them for the additional accounts and property earmarked for them at the parents’ passing.
We are here to help. Preparing your beneficiaries to receive money and property can in many ways be an even greater challenge than preparing your money and property for your beneficiaries. Nevertheless, putting sufficient effort into such an undertaking has the potential to pay huge dividends by helping to ensure the money and property you have spent your life accumulating will be used to truly benefit your loved ones in the way that would be most satisfying to you. If you are uncertain about where you should start, please reach out to us. We have significant experience helping our clients determine the right questions to ask to begin this important process. We are here to help—call today to set up a virtual or in-person meeting.
Law Offices of J.R. Hastings • 1003 Third Street, San Rafael, California 94901 • 415-450-6692