About $40 trillion. That's the amount of money boomer parents are expected to leave to their millennial offspring over the next 30 to 40 years.
If you're among those leaving a tidy sum to your loved ones, you will want to do it right.
Last year, AARP included an article in its materials titled, "How to Leave an Inheritance to Your Kids." Among other things, the article provides several tips on how to properly set up your estate plan to leave an inheritance to your children.
One tip is to manage expectations. Talk to your children so they will have a better understanding of your assets and what they may expect as their inheritance from them. Another tip is to treat all of the children equally. This will reduce cause for arguments and hurt feelings. This equal treatment should also include sharing responsibilities when it comes to settling your affairs, not just the division of assets. If, however, you decide to split your assets in some manner other than equal shares, take the time to explain your reasoning.
AARP also suggests creating a trust if you are concerned with how a child will use the inheritance. A trust will allow you to control the disbursement of the assets and place contingencies or strings on the gift. This can include reaching a certain age or using the money for education.
However, the experts quoted in the article warn against creating an “incentive trust,” which makes distributions based on accomplishing a specific goal. While you want your child to have the inheritance and use the money wisely, issues can arise if he or she does not go to college. For example, what if becoming a hair stylist is their chosen career path?
Things happen to all of us, and there is no way to predict the exact events that will impact your child's life. Keep it simple and work with your estate planning attorney to craft your estate plan so you are leaving your inheritance to your children in an effective and sound manner.
Reference: AARP (April 24, 2013) "How to Leave an Inheritance to Your Kids"