GIVING YOUR ASSETS OUTRIGHT TO YOUR BENEFICIARIES OR YOUR CHILDREN WHEN YOU PASS AWAY IS A MISTAKE.
Why?
Because you are actually giving away the opportunity for the beneficiaries to be able to protect those assets from problems they may encounter in their lifetime. Whether it be divorce, Medicare spend down, lawsuits, professional liabilities… etc.
Other considerations include a beneficiary’s level of financial acumen. Even well into adulthood, financial maturity varies from person to person, and reaching a particular age doesn’t necessarily mean that individual is ready, willing or able to make intelligent decisions regarding managing their sudden wealth (or choosing a good financial advisor to manage it, for that matter!).
Then there’s other various factors to consider such as substance abuse, gambling or beneficiaries who are simply spendthrifts.
Even if you are one of those people who say you won’t care what happens to your assets when you pass away, or you don’t want to “control your money from beyond the grave”… it’s not about control. If you prepare your estate in such a way that the assets stay in place when you pass instead of being doled out, then you have built a structure designed to protect those assets from what may eventually go wrong in your beneficiaries’ lives. It’s about being responsible, intelligent, and creating the most advantageous situation for the next generation as they carry on with the gift you have so generously left them.
When we sit down with people for their initial review, we go over their investments as well as all the things that they have created structurally….wills, trusts, LLC’s, etc. About ninety percent of the time we see that the continuity of their plans fall into the abyss when they pass away. Quite often we see estate plans set up to be distributed outright whether it’s divided 1/3 each to three beneficiaries, or just apportioned out at certain ages. The point of the matter is that those assets were designed to leave the trust and spill out to the beneficiaries at some point in time.
In our professional opinion, this is a very big—and very common– mistake.
As a matter of fact, some of the wealthiest families in the world have structures in place where their assets never get distributed outright to their beneficiaries. They stay in trust for at least several generations. That’s not to say the beneficiaries don’t have access to income and other benefits—trusts can be designed with great flexibility and imagination to allow provisions that care for the beneficiaries—all while remaining in trust.
This method of estate planning creates greater capabilities in the areas of tax planning and asset protection as well as provides for the growth and preservation of wealth from one generation to the next.