Different Ways that an Inheritance Could be At Risks
If you have assets that you want to pass on to your children, you could consider a written will, which is a service that is provided by a specialized attorney. Of course, you can create a simple will on your own suggesting that you will be leaving all you have in assets to a spouse or children once you are deceased, dividing the estate between specific loved ones. However, is this enough? And would you or your children need future financial advice about the process?
Many children may not pay for additional advice, if you were to leave assets in a simple will. From the children’s viewpoint, if the advice will help them to learn how to handle this sudden wealth, they would prefer not to listen to their parent’s financial advisor, especially if there was no initial relationship. The children would probably seek help from another financial professional that is close in age to them or a professional that they consider able to handle their particular needs or interests. Most likely, the children would not stay with an advisor who will retire prior to them.
The children’s inheritance may be in jeopardy, if the right choice is not made to use the services of the appropriate financial professional. Below are a few scenarios of what could occur in a case where there are two children, Jamie and John receiving half of the estate. Notice the risk associated with each inheritance.
Jamie gets a divorce. Now in this case, 50% of the inheritance would probably be given to the ex-husband in a divorce settlement.
John operates a successful business and then the market changed and the business has experienced a loss, eventually liquidating. The inheritance that John received now is at risk. Creditors may come after the inheritance and it may be included in any bankruptcy proceedings.
Both Jamie and John may be doing financially well and upon approaching the inheritance tax threshold, they also will be accumulating their own assets. However, if, after receiving the inheritance, something happens to them before having sufficient time to put something away for their grandchildren, then the inheritance tax will take away a lot of the money.
Let’s say you are deceased and your spouse survives you. The spouse then gets married to someone else later and then the spouse also dies with no update to the will through intestate, leaving all joint assets to his or her husband or wife, then your children will get nothing.
These types of scenarios are never planned and that is why it is important to have all inheritance protected from creditors, bankruptcy court, surviving spouses, and divorce settlements. For a lot of parents, the downside is that the child could automatically be able to access the funds at a specific age, probably spending it off without any financial advice from a professional. It is impossible to predict whether the child will exhibit maturity upon receiving these funds. For that reason, do your part as a parent to secure the inheritance from these and other risks.