Regardless of the size of your estate, everything you should consider as you create your estate plan falls into three main areas:
- How much you need to maintain your lifestyle.
- How much you want to leave your children and grandchildren.
- What to do with the rest.
Even as you work on the numbers, manage your assets and prepare all the legal documents, keep this critical point in mind:
The most important part of the bequests you make isn’t the dollar amount, it’s that you also pass on the ability to handle the wealth you’re leaving behind.
Will your beneficiaries be able to manage what you leave in a positive way? Or will they develop sudden wealth syndrome (SWS), which is when the pressure of unexpected or abrupt fortune develops into emotional and behavioral afflictions?
We often see SWS in lottery winners, gamblers who hit it big, and those who are unprepared for a substantial inheritance. Though your motivation to give may be love for your heirs, you don’t want to ruin their lives with wealth they’re not ready to handle.
So how do you make sure whoever is receiving your bequest is equipped to steward it well?
In your family, make conversations about money and what your heirs can expect casual and common.
Wealth without wisdom leads to destruction. It’s more important to pass on wisdom and how to live within one’s means than to pass on wealth to someone who is not ready.
Talk about spending and investing, work and rewards, and the value of a dollar. Talk about finances, credit, and planning for the future. And talk about expectations—yours and theirs.
Choose an estate planning attorney who will take the time to get to know you and your family well enough that they can give you the advice you need to protect your estate now and your heirs later.
When I look at my own children, even though they’re great kids, the jury’s still out as to how well they’ll be able to handle an inheritance. My husband and I still have work to do to be sure they’ll be good stewards, and we’ve taken steps to protect them if we should die unexpectedly.
One strategy you may consider, especially if your children are young or haven’t proven themselves capable of sound financial management, is what I call control from the grave. To avoid having them get an overwhelming large lump sum, you can set up a trust and schedule how much they receive and when. You can create stipulations for monetary distributions, such as educational or other life achievements. If you have a child with issues such as substance abuse, you can add clauses to the trust that will address how the money is distributed so it isn’t used for illegal purposes and it doesn’t do more harm than good.
Apply this same philosophy to charities or other organizations that will receive a share of your estate. Research them thoroughly to be sure they will be good stewards of your gifts. Carefully examine their website, search online for independent reviews and comments, and check them out through one or more of the organizations that are designed to help you research charities, such as Charity Navigator or Charity Watch.
We have a number of resources on our website designed to help you through the process of estate planning and—equally important—protecting your legacy. They include:
Of course, I’m always available to talk. Give me a call when you’re ready.