For many parents, comprehensive financial planning involves finding the best way to leave money, property, and assets to their children. No parent wants to leave their children unnecessary fees or stuck in litigation over inheritance. Alarmingly, a study cited by CNBC found that approximately 33 percent of Americans who received inheritance had a negative savings within two years.
One of the core questions in estate planning is, How should I pass down inheritance to protect my children? As with other estate planning issues, the answer will always depend on your specific circumstances. Here, our Texas estate planning attorneys highlight some of the key strategies that are used for leaving inheritance to children.
The Three Most Common Methods to Pass Inheritance Money for Children
Distributions (Financial Gifts)
Depending on their specific financial circumstances, parents may want to consider making distributions to their children now. This type of strategy is typically only appropriate for parents who have a large nest egg — usually $2 million or more — and who are on track to meet their own financial goals. As explained by the Internal Revenue Service (IRS), the annual gift tax exemption for 2019 is $15,000. A financial gift below this threshold is not taxable. Of course, beyond that, it also does not have to go through probate or any other legal process. You can simply write a check.
You can leave your children their inheritance money using your will. In popular culture, this is probably the most well-known strategy for leaving inheritance. In some cases, a will is an effective way to leave an inheritance — particularly if the amount being left is relatively modest. That being said, there are some significant drawbacks to using a will to leave an inheritance. In Texas, a will has to go through the probate process. Probate has the potential to be lengthy and frustrating. This means that inheritance cannot be accessed right away — it could be months or even years if a dispute arises. Additionally, in some cases, creditors may try to make a claim on some of the funds.
For many parents, the best way to leave inheritance is through setting up a trust. Whether creating a trust is right for your specific situation will depend on a number of different factors. Though, as a general rule, the more money you are leaving and the more complicated your estate, the more likely it is that you and your family will benefit from using a trust to pass on assets. Trusts are misunderstood. Popular media often portrays trusts as something that is for extremely wealthy families — think of the connotations of the term “trust fund kid” — but the reality is that trusts are an effective and efficient estate planning tool. Among other things, they can help:
- Avoid the probate process;
- Reduce the risk of conflict;
- Produce financial savings; and
- Allow for gradual distributions of inheritance.
Trusts can be customized to meet the unique needs of you and your children. In some cases, parents can use a simple revocable living trust to leave a child’s inheritance privately, without worrying about probate. In other cases, parents may need to create Special Needs Trust (SNT) to provide financial protection to a child who has disabilities.
The Best Way to Leave Inheritance Depends on Your Financial Circumstances
With estate planning, one-size-fits-all strategies simply do not work very well. The best way to leave inheritance money for your children will depend on your financial circumstances, their financial circumstances, and other unique factors. This is why ‘do-it-yourself’ estate plans often leave people frustrated. Unfortunately, these include the risks of:
- Confusions and delays in accessing money;
- Claims from creditors;
- Avoidable financial penalties/costs; and
- Conflict between close family members.
By working with an experienced San Antonio, TX estate planning lawyer, you can rest easier relying on their skill and experience — knowing that your estate planning will be customized to ensure that inheritance is left to your children in the most efficient, financially advantageous manner.
Speak to Our San Antonio Estate Planning Lawyers Today
At Weisinger Law Firm, PLLC, our San Antonio estate planning lawyers have deep experience helping clients plan for leaving an inheritance to their children and grandchildren. We are committed to making the estate planning process as easy, understandable, and stress-free as possible. To schedule a free, confidential initial consultation, please contact us today. With an office in Selma, TX, we represent clients in San Antonio, New Braunfels, San Marcos, Universal City, and throughout the region.