It is often concern for loved ones that pushes people to first create an estate plan. You don’t want your children to suffer because of your death, so you ensure that they will have a guardian when they are minors and an inheritance to help support them as they grow older.
Despite your best intentions, the resources that you set aside for your children could do more harm than good. There are situations in which an inheritance can cause problems for children.
The risk of caregiver abuse
If you leave a large inheritance to your children while they are still minors, caregivers will be the ones with control over those resources until your children turn 18. The obvious risk is that the caregivers might waste those resources and use them for personal benefit rather than to support your children.
Those with young children, especially those divorced from the other parent of their children, may determine that using a trust for their children’s inheritance helps reduce the threat of caregivers abusing their children or misappropriating those resources.
The risk of tax liability
The bigger an inheritance is, the more likely it is to trigger tax obligations. While Florida doesn’t collect estate taxes, there are federal taxes and other risks to consider.
From inheritance taxes that could apply if your children live in another state to capital gains taxes that they may incur if you pass property to them using a deed at the time of your death, there are many ways that an inheritance could go from a financial boon to a frustrating and expensive responsibility.
Advance planning to address tax risks will help ensure that your loved ones receive as much as possible without taking on a bunch of financial responsibility simultaneously.
The risk of misusing an inheritance
Some people are at greater risk than others for not handling an inheritance properly. People with special needs, those who have just become adults and those with a troubled past may struggle to use an inheritance wisely.
An addict, for example, might use some of the money you leave them to buy a dangerous amount of their substance of choice. Trusts can be useful for those worried about their children misusing resources, just like they can help those subject to possible tax liabilities or who inherit property while still too young to own assets.
Integrating the right documents into your estate plan will help ensure that what you leave for your children is more beneficial than dangerous.