Even the strongest estate plans can crumble if they’re not maintained over time. Outdated documents, forgotten updates, or leaving assets directly to children without protections are just a few of the ways families unintentionally sabotage their own plans.
In this blog, we’ll look at how estate plans fall apart, and more importantly, how you can keep yours strong for the future.
You spend your entire life earning your money and protecting it. You are careful with living expenses and purchases. You watch for sales and bargains. You may clip coupons. You invest cautiously. And after you (and your spouse) die, your children receive everything you owned in one lump inheritance. Now what happens?
It doesn't matter whether you will leave your children $10,000 or $10 million. There are several reasons why you would not want your children to receive the entire inheritance right away.
Financial mismanagement. Your children may not be responsible enough to handle this amount of money. Will they invest wisely, or will they recklessly spend the assets it took you a lifetime to accumulate? Do they have any bad habits, like gambling or drugs? Do they regularly save from their own earnings now, or do they spend everything they can get their hands on?
Divorce exposure. Even if your children are financially responsible, they could lose the assets in a lawsuit. If they are in an unstable marriage and they divorce, an ex-spouse could end up with your assets as part of the settlement. Even a current spouse could have access to the assets if your son or daughter adds their spouse as a joint owner or puts assets in a joint account with that spouse.
Loss of drive. Too much money too soon can make a person unproductive. Do you want your children to retire as soon as you die? Receiving everything at once can reduce motivation to pursue work or personal goals, drive, and productivity.
No multigenerational control. If your children are financially secure, you may not want them to inherit from you at all. You may prefer to provide for your grandchildren.
Future estate taxes. Assets you leave to your children will be included in their estate plans and taxed when they die. Would you simply be giving them a tax problem and giving even more to the IRS?
Instead of giving your children everything right away and hoping they don't blow it, consider keeping the assets in a Trust (a Trust that keeps on going, after death). This would protect the assets from creditors, spouses, and from irresponsible spending and investing. It also keeps the assets out of your children's taxable estates, which means less for the IRS and Illinois and more for your grandchildren and future generations.
You can still provide for your children however you wish, by putting certain instructions in your Trust. You can be very specific, or you can let the Trustee decide when to distribute income or principal according to your beneficiaries' needs, using your general guidelines, but within the Trustee's discretion (this is called a "spray" or "sprinkling trust").
For example, you might create a "support" trust that requires that the trustee pay only enough income and principal to pay for your children's support, maintenance, and health. You might decide to provide your children with a periodic payment of income only. You may want to help them start a new business, buy a home, or even pay for your granddaughter's education. You may instruct the Trustee to match the income your children earn to encourage them to be productive members of society. Your Trust can even supplement their incomes if they choose to become teachers or do other worthwhile but lower-paying work.
The manner in which you provide for your children lets you continue to influence them after you're gone. It lets you provide some values and guidance. It's an opportunity to be a continuing example. It shows them how much you care about them and their families. Perhaps it will influence them to be as conscientious in their own planning. It can also be a protective device to insulate an inheritance from attacks by lawsuits, creditors, and divorces.
Takeaway: Instead of an outright gift, fund a continuing trust that governs distributions over time, shielding assets from claims and taxes, preserving your legacy, and guiding your children’s financial future.
Too many people have a Will or Trust prepared and think that's all they need to do forever. They put it in a drawer or safe deposit box and never look at it again. The family often discovers much too late that Grandpa left everything to his first wife, whom he divorced 30 years ago. There is also a huge check to be written to the IRS because Grandpa's Will wasn't kept current with changing tax laws.
Estate plans are a "snapshot" of you, your assets, your family situation, and the tax laws in effect at the time it was prepared. All these things change, and your estate plan will need to change, too.
It's a good idea to review your plan at least every 2 years. Generally, it should be changed whenever it no longer does what you want it to do.
Here are a few situations where estate plans need to be changed or updated:
If you need to change your Trust or Will, do not write on your current Trust or Will; it could make the document invalid. If that happens, your estate would go through probate as if you had no Will or Trust, your assets would be distributed according to the laws in your state, and any tax planning in your Will or Trust would be useless.
Takeaway: Treat your estate plan like any important contract. Review it at least every two years and update it whenever your family situation, assets, or the law changes.
Estate plans should be designed to stand the test of time, not fall apart when your family needs them most. By keeping your estate plan current and tailored to your loved ones’ needs, you can protect your legacy for generations.
If you’d like to review and strengthen your estate plan, we’re here to help you every step of the way. Call us at (847) 670-8200 or email info@kf-lawgroup.com to get started.