How to Leave Assets to Adult Children

When considering how to leave assets to your adult children, first decide how much you want each one to receive. Most parents want to treat their children fairly, but this doesn’t necessarily mean they should receive equal shares of your estate. For example, you may want to give more to a child who is a teacher than to one who has a successful business. Or you may want to compensate a child who has taken care of you during an illness or your later years.

Some parents worry about leaving too much money to their children. They want their children to have enough to do whatever they wish, but not so much that they will be lazy and unproductive. Well, no one said you have to give everything to your children. You may prefer to leave more to your grandchildren and future generations through a trust, and/or make a generous charitable contribution.

Next, decide how you want your children to receive their inheritances. You have several options from which to choose.

Option 1: Give Some Now
If you can afford to give your children or grandchildren some of their inheritance now, you will experience the joy of seeing the results. You could help a child buy a house, start a business, be a stay-at-home parent to your grandchildren, or even see your grandchildren go to college—and know that it may not have happened without your help. This would also let you see how each child might handle a larger inheritance.

Option 2: Lump Sum
If your children are responsible adults, this may seem like a good choice—especially if they are older and you are concerned that they may not have many years left to enjoy the inheritance. However, once a beneficiary has possession of the assets, he or she could lose them to creditors, a lawsuit, or a divorce settlement. Even a current spouse can have access to assets that are placed in a joint account or if your child adds his/her spouse as a co-owner. If it bothers you that a son-or daughter-in law could end up with your assets, or that a creditor could seize them, or that a child might spend irresponsibly, a lump sum distribution may not be the right choice.

Option 3: Installments
Many parents like to give their children more than one opportunity to invest or use the inheritance wisely, which doesn’t always happen the first time around. Installments can be made at certain intervals (say, one-third upon your death, one-third five years later, and the final third five years after that) or at certain ages (say, age 25, age 30 and age 35). In either case, be sure to review your instructions from time to time and make changes as needed. For example, if you live a very long time, your children might not live long enough to receive the full inheritance—or, they may have passed the distribution ages and, by default, receive the entire inheritance in a lump sum.

Option 4: Keep Assets in a Trust
You can keep your assets in a trust and provide for your children, but not actually give the assets to them. Assets that remain in a trust are protected from a beneficiary’s creditors, lawsuits, irresponsible spending, and ex- and current spouses. If you have a special needs dependent, or if a child should become incapacitated, the trust can provide for this child without jeopardizing valuable government benefits. If you have a child who might need some incentive to earn a living, you can match the income he/she earns. (Be sure to allow for the possibility that this child might become unable to work or retires.) If you have a child who is financially secure, you can keep the assets in trust for your grandchildren and future generations, and still provide a safety net if this child’s situation changes and he/she needs financial help. This option gives you the most flexibility, control and protection over the assets you worked a lifetime to accumulate and build.

While there is no one right choice for how to leave assets to all adult children, given many individuals’ concerns over protecting inheritances from creditors (particularly ex son or daughters in law), many choose leaving their assets in trust for the benefit of their children and/or grandchildren. Regardless of your ultimate choice, this is an important decision that should be considered with input from your estate planning professional.