Stretching Wealth & Protecting Inheritance
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Entrusting inheritance to family members requires some thought about how family members will manage the money. You’ve worked hard for your money and a poor steward can blow it in no time. Relatively simple planning can help build and protect a financial legacy for future generations.
Jesus Understood This Problem
Jesus gave a parable about a wealthy man who put three servants in charge of managing money, according to the abilities that he believed that they possessed. The two most talented servants invested the money carefully and increased their master’s wealth. The third servant hid the money away to protect it and caused it to earn nothing during the master’s long absence. In Jesus’ parable, the master rewarded the two savvy servants and punished the foolish servant for burying the money.
Drugs, Alcohol, Gambling & Other Vices
Drugs, alcoholism, gambling addiction, and other addictions destroy families and wealth. Some people plan their estates to protect wealth from such threats. A well crafted estate plan can protect money from being squandered by drug addicts and alcoholics. The money can also be used as an incentive for addicted family members to clean up their lives and qualify themselves for inheritance.
Credit Cards
Credit card debt is persistent a problem for many people. Some estate plans provide protections that allow family members to receive money, but prevents creditors from taking their money. It is hard to anticipate whether estate plan beneficiaries will experience financial problems, so estate plans often include discretionary authority for trustees to assess beneficiary’s financial status and withhold distributions until beneficiaries resolve their problems.
Grandchildren Suffer
Grandchildren sometime suffer the consequences of their addicted parents’ behavior. Therefore, many grandparents are making estate plans that preserve wealth for their grandchildren instead of letting their children squander the money. Plans that skip down to grandchildren require more forethought, however, because young grandchildren may need time to mature before receiving significant inheritance. For that reason, many multi-generation plans hold inheritance in trust until younger generations reach more mature ages.
Stretching & Making It Last
The retirement plan rules allow families to stretch wealth over multiple generations and increase its value with time. A retirement plan earns money on a tax-deferred basis. This means that money invested in a retirement plan earns income that does not have taxes taken out of it and the retirement plan grows much faster than a normal investment plan because the tax money continues to earn new income as it is compounded into the retirement account.
Many retirees set up plans to enable their children to continue withdrawing small amounts of money from the plan after the retirees’ deaths, without liquidating the plan and paying exorbitant taxes. In some cases, retirees are set up such plans for their grandchildren causing enormous wealth growth for the grandchildren to enjoy as their own retirement plans many years in the future. Such plans, called “Stretch IRAs”, require careful planning and document preparation.
A properly designed retirement plan is very important. Appropriate trust agreements and wills can help ensure that future generations of family can build upon their ancestors’ work and live financially sound.
Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator, a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation; a member of the Illinois State Bar Association and the Indiana Association of Mediators; and he was the 2014-15 President of the Indiana State Bar Association.
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