You’ve worked hard and invested wisely over the years, so as you create your estate plan, you’re proud that you can leave your adult child a substantial amount of money. But are they prepared to handle it? Even seemingly responsible adults can be thrown for a loop when they’re suddenly handed an amount of money they’ve never seen before.
Whether you’ll be leaving your child $100,000 or $1,000,000, if they’re not prepared for it, they could end up spending it or somehow losing it. While you may not know exactly how much you’ll be able to leave your child, once you’ve completed your estate plan, you’ll have some idea.
How will the inheritance affect your child?
Next, you need to consider how it will change their life. Will they use the money responsibly to pay off student debt, buy a home and invest the rest wisely? Or will they be so overwhelmed (or influenced by others) that they make a series of bad decisions?
You can’t know for sure, but you can ask yourself some questions about your child, like:
- Do they currently live within their means? If they do, they’re more likely to treat the money responsibly.
- Do they feel entitled to everything you’ve been able to give them or do they appreciate it and feel gratitude? When someone has a sense of entitlement, they often don’t make sound financial decisions.
- Will the inheritance make a substantial difference in their total net worth? If it won’t, it likely won’t have a significant effect on them. If it has the potential to change their lifestyle significantly, it might.
Ultimately, of course, it’s a subjective process — but the more you think about these questions, the clearer your feelings may become.
Consider your options before talking to your child about their inheritance
Remember that just because you have a large amount of money to leave your child, you’re not obligated to. You might choose to leave most of it to worthy organizations or set up a charitable trust. If you do want to leave the money to your child, but not all at once, you can set up a trust with restrictions on it.
Your estate planning attorney can help you review your options for passing on your wealth to your child. Once you’ve made that decision, it’s essential to talk with them about their inheritance and give them the help and guidance they need to use it wisely.