Preparing Your Beneficiaries for Their Inheritance

“Preparing Your Beneficiaries for Their Inheritance ”

A good estate planning attorney will help you prepare your assets to pass effortlessly and safely to your loved ones. Together with your attorney, you will carefully and thoughtfully consider the most effective plan for your unique situation using a variety of legal documents including wills, trusts, powers of attorney, and health care directives.  

Give thought to how beneficiaries will be prepared.  

One overlooked part of estate planning, however, is preparing your beneficiaries to receive money and property. We consider this to be a part of a larger general communication strategy about your estate plan. Lots of thought goes into minimizing taxes, avoiding probate, and protecting property and accounts, while some clients forget to put sufficient thought into 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.

Who are the successors for your business?  

If a family business contributes to your family’s wealth, have you thought about and identified who will run the business if you are 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 their role? What expectations does your successor have about the financial rewards of participating in the business that differs from those of the rest of the family? Unanswered questions like these can create significant conflict and affect the success of the business. 

How will your beneficiaries manage complicated estates?  

Does your estate include a complicated portfolio of stocks, bonds, cash, and investment accounts? If that is the case, how well versed are your beneficiaries in 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, allowing them to achieve the most benefits from the accounts left to them? Or do they consider such professional advice needless, expensive, or untrustworthy? Will their attitudes towards your team help them be successful? Have they met with your advisors so that they are familiar with the team and their role?

How will real estate be owned?

It surprises some clients that 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 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.

The situation becomes even riskier if you own farmland, several rental properties, or commercial property. Do your beneficiaries know what is expected of them and how to manage a portfolio of real estate?

What about asset protection?  

Have you communicated with your children about how they want to receive assets? You might be surprised to hear that some adult children list reasons why receiving an inheritance outright would be a disaster for them. Parents are not always aware of marital or financial challenges children may be facing with the potential to lead to a significant, if not total, loss of their inheritance.

Does it make sense to gift today?

Some parents choose to give all or part of their accounts and property to observe how their children will manage and use the property. You could learn 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. Also, 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 resources, preparing them for the additional responsibilities after your passing.

How can you find help preparing your beneficiaries for their inheritance? 

Much of the preparation of beneficiaries comes down to careful communication with your loved ones. This can feel like an even greater challenge than preparing your money and property for your beneficiaries. Putting effort into this communication has the potential to pay even larger dividends than any time spent on legal documents and helps to ensure your beneficiaries will thrive especially because of the resources you provide them.  

If you are uncertain about where you should start, please reach out to us.  

Try attending one of our monthly workshops, especially Letters of Intent and Legacy Letter Writing. Or ask us to schedule a family meeting to help you communicate all of the different aspects of your estate plan and their inheritance with your loved ones. 

Read More:

What is the Difference Between Being the Beneficiary of a Trust vs. a Will? 

Your Child or Children as Beneficiaries

Can You Name a Child as a Beneficiary to Your IRA? 

How to Provide for your Loved Ones After You’re Gone 

We offer workshops and webinars every month for our clients.

A few of the workshops that address successor trustees are:

Understanding Your Estate Plan

Trustee School Part I and II

Please view our upcoming client workshops