Will Gift to Heir Be a Benefit or Burden?

POSTED ON: December 28, 2021

One of the biggest conundrums of estate planning is considering how, or even if, you can give money or property to your heirs in a manner that will help them.

Will Gift to Heir Be a Benefit or Burden?

Research shows that getting a lot of money can have harmful consequences. According to MarketWatch, a study found that a third of people who received an inheritance had negative savings within two years of the event.

Watertown Public Opinion’s recent article “How to make sure you leave inheritances that are helpful, not harmful” says that, on average, an inheritance is gone in about five years because of careless debts and bad investment behaviors.

However, a minority of heirs don’t mishandle their inheritances. Nonetheless, it’s good to explore exactly what you intend the gift to accomplish, prior to leaving money or property to someone. It’s also important to consider the possible negative consequences of a gift.

To determine if the gift to the heir will be a benefit and not a burden, determine if the gift will actually cost the recipient time or money. As an example, leaving the family home, vacation property, land, or a ranch to someone can often cost them money they may not have in maintenance or taxes.

You should also consider if it results in causing difficult emotional issues between siblings, and whether it might encourage bad financial behavior.  For example, a property, business or home left to several siblings can cause conflict.

Also, if a beneficiary hasn’t developed healthy financial behaviors, a significant inheritance might actually create new financial troubles instead of addressing existing ones.

A good way to make certain that your bequests are helpful is to explore your own intentions. Ask yourself if you want to leave enough money for the beneficiary to become financially independent and if you’d you like your bequest used in a specific way, like to pay off debt or fund education.

Do you care how they spend the money?

Another way to provide for thoughtful, conscious inheritances, is to speak with the intended recipients.  Ask them directly whether someone would want a bequest, such as a valuable art or coin collection or perhaps an expensive vacation home. Discuss the options and possibilities and don’t simply take for granted what your heirs might want or what they might do with an inheritance.

Here is a good way to make sure that a gift to an heir will be a benefit and not a burden: A discretionary spendthrift trust.

Not a small number of my clients have children who may have significant debts, or are in perilous situations within their marriage.  Some are (oir were) addicted to drugs.  For these types of heirs, a discretionary trust for the life of the heir may be a good option.  This type of trust is called a “spendthrift trust” or a “discretionary trust”.  The trustee of the trust hold the purse strings and only distributes the trust corpus and income as it is needed.

Leaving a family member an inheritance can be helpful in some instances, but may be exceedingly destructive in others. No two situations are alike, and if you want to increase the chances that your bequests will be helpful, explore and improve your own relationship with money. Examining that relationship can help make sure that what you leave to heirs will be a benefit not a burden.

If you liked this article, “Will Gift to Heir Be a Benefit or Burden?”, check out these other blog posts addressing estate planning and asset protection: How Do You File Taxes If Your Spouse Dies? and What If Account has No Named Beneficiary? and What a Will Will Not Accomplish and Should You Put Your House in Your Child’s Name?

BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about esate planning and asset protection.

Reference: Watertown Public Opinion (Nov. 1, 2021) “How to make sure you leave inheritances that are helpful, not harmful”

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