Preparing Children for Future Inheritance

Parents need to prepare their children to oversee and sustain their inheritance.
Parents need to prepare their children to oversee and sustain their inheritance.

Transferring wealth and having it last more than two generations is very difficult, says an article that offers suggestions: “4 Ways to Prepare Children Now to Oversee their Inheritance Later” from Forbes. A decades-long study of 2,500 families found that 70% of family fortunes disappear by just the second generation. By the third generation, that number leaps to 90%.

Why is wealth retention so difficult? One of the key reasons is a lack of preparation. Parents may devote time and resources to ensure that their estate is organized, but they must also prepare their children to oversee and sustain inherited wealth and give them the skills, values and knowledge needed.

How can parents make sure their family wealth endures? Here are a few steps:

Have an estate plan created. This lets you maximize the inheritance left to heirs, by minimizing taxes and asset distribution costs. When the children are minors, name guardians to take care of them and trustees to financially manage their inheritance until you feel they are old enough to do so, themselves.

Give your children a financial education. Children need to be taught how to save, what compound interest can do, how investments work and how money is earned. Let them handle money early and experience the consequences of poor decision making. Better to learn at a young age with small amounts of money, than when they are adults and the stakes are higher.

Let them know what the family’s net worth is and apprise them of any changes. These discussions should be age-appropriate, but financial openness and honesty that starts young eliminates confusion and mixed messages. Give them a small stake in the planning, by allowing them to choose a charity and make a donation to it. Delegating even a small portion of control and letting the child see how it feels to be a steward of wealth is an important lesson.

Encourage children to build their own wealth. Many wealthy parents worry that knowing there is an inheritance in their future will prevent their children from having any ambitions. Grant a limited amount of control over portions of their inheritance at certain ages and teach them about options: investing, saving, donating or spending.

A financial education that starts early and provides time for lessons to be learned will make children at any economic level better prepared for good decision making throughout their lives.

For more information on other issues related to estate planning and your children see https://www.galliganmanning.com/estate-planning-life-stages/planning-for-minor-children/

Reference: Forbes (July 1, 2020) “4 Ways to Prepare Children Now to Oversee their Inheritance Later”

 

Continue Reading Preparing Children for Future Inheritance

Different Kinds of Powers of Attorney

Many people know they should have a Will, but Powers of Attorney (POAs) may be even more important because they assist you during your lifetime.

Many people recognize they should have a Will.  But, in many situations, the most important planning document may be a well-drafted power of attorney as described in The Miami News-Record’s recent article entitled “Power of attorney options match different circumstances.”

When a person can’t make his or her own decisions because of health, injury, or other circumstances, a power of attorney (POA) is essential. A POA is implemented to help their loved ones make important decisions on their behalf. It helps guide decision-making, enhances comfort and provides the best care for those who can’t ask for it themselves. A POA permits the named individual to manage their affairs.  Unlike a Will, the client themselves are at risk if they don’t have a POA.

To know which type of POA is appropriate for a given circumstance, you should know about each one and how they can offer help. Now, keep in mind there more different kinds of powers of attorney than what I discuss here, but these apply to virtually everyone at some point.

Durable Financial Power of Attorney. This is the most common and is the default for most planning. These give a person decision making authority limited to the powers provided in it.  The term “durable” means that it continues to be in effect when you are incapacitated.

Some of the key issues to determine are whether you give the agent the ability to make gifts, including to whom they can gift, the ability to change beneficiary designations, change your estate planning documents and other issues.

Springing Power of Attorney. One key issue of the POA is when it starts.  For example, it can be effective immediately upon the execution of the documents, or it can start once the POA creator becomes incapacitated.  This is a “springing” power of attorney because it “springs” into action upon the event of incapacitated.   Some people may not feel comfortable granting someone else power of attorney, while they’re healthy. This POA takes effect only upon a specified event, condition, or date.

Medical Power of Attorney. Especially in a hospice setting, it permits another person to make medical decisions on the patient’s behalf, if they lose the ability to communicate. This includes decisions about treatment. In this situation, the agent takes the role of patient advocate and communicates with the physicians.

Limited Power of Attorney. This POA provides the agent with the authority to handle financial, investment and banking issues. It’s usually used for one-time transactions, when the principal is unable to complete them due to incapacitation, illness, or other commitments.  The most obvious example is a limited POA for real estate transactions.

Powers of attorney are far more complex and important than people realize, and the law changes on them frequently.  There are many other reasons to update your estate plan as well such as described here https://www.galliganmanning.com/twelve-reasons-to-update-your-estate-plan/   If you don’t have this document, ask a qualified elder law or estate planning attorney to help you create one.

Reference: The Miami (OK) News-Record (July 7, 2020) “Power of attorney options match different circumstances”

Continue Reading Different Kinds of Powers of Attorney