How To Keep A Child From Blowing A Large Inheritance

I was working with a Lafayette, Louisiana couple recently. They had one child - a daughter. The couple had worked hard to build a business together while they were working. They were successful - build an estate that consisted of millions of dollars of net worth.

They acknowledged to me that they had spoiled their daughter and enabled her to get used to a lifestyle that was "spend now - worry about paying for it later." They feared that if they had an estate planning program that dumped these millions into the daughter's lap, that it would all be gone six months later.

The couple has three grandchildren from this daughter and the couple is really worried about the future well-being of these grandchildren. They were looking for guidance from me on how they should leave their estate to their family. I knew I did not want to tell them what to do - I wanted to give them options and put them in a position where they could make the best informed decisions for their family.

We discussed all of their options. Here's what they came up with. After couple both pass away, they will leave half of their estate for the benefit of their daughter, and half of their estate for the benefit of their three grandchildren. And they were specific about how they were leaving their estate to their descendants.

  1. Amount for daughter. The daughter will not get her inheritance in a lump sum. She will get an annual distribution for each of the five years after the couple is gone. Then, she will receive the remainder of her share in five year intervals. This will prevent the daughter from blowing her inheritance all at once.
  2. Amount for grandchildren. After the couple dies, the amount for the grandchildren will be held in trust. A trusted professional will serve as the trustee, spending the money as needed for the education and well-being of the grandchildren. The grandchildren will get their inheritance in stages until the last distribution at age 50.
  3. Revocable Living Trust. The couple does not want their to be court proceedings when each of them dies, so we are setting up their estate in a revocable living trust so the typical delays and costs associated with probate are avoided when they die.

The decision of what to do with this couple's estate had been bothering them for quite some time. Now they know that their daughter will not be able to blow her inheritance, and they know that they have provided that their grandchildren's education will be paid for, and their grandchildren will be able to get a much-needed head start financially on their lives. They were also pleased to know that, indirectly, they were also providing for their future great-grandchildren that do not yet exist.