Many people are more concerned about preserving their wealth for the next generation than they are about their own well-being or bucket list. Hat’s off to you paternalistic savers – your next generation would thank you if they only knew how you really feel.
Many make gifts that they can’t afford and avoid spending on themselves for the benefit of the next generation – but then let it all fall apart upon their death or bad health.
Let’s start by talking about your beneficiary designations. You have beneficiaries for both retirement accounts and insurance company types of accounts. A common beneficiary designation is to leave your benefits to the spouse, then to your children equally. Have you considered whether you are helping or hurting your beneficiary by leaving them what could be large sums of money outright? Think about your daughter who struggles with marital problems or the child or grandchild who receives a large sum and then feels differently about their own spending habits and lifestyle. That large account to your daughter outright could be just what the trouble causing husband was looking for to make his exit with half of your hard earned savings. Younger beneficiaries may not have a troubling spouse, but they may have leach like friends, or a passion for expensive things.
In your estate documents, whether they are wills or trusts, the moving parts often look the same as with your beneficiary types of accounts. Assets are commonly left directly to a spouse and then to the children equally for their enjoyment, whether immediate or deferred. Many estate planners will build in some sort of protection against young people getting too much too soon by causing it to be protected until the children reach a certain age, commonly somewhere between 25 and 35. But do you really think that your responsible child of today at the ripe age of 30 or 35 is free from all financial perils for the rest of their life? People of all ages make bad business decisions, get divorced or get sued.
One option for protection can be had by using trusts that limit access to the assets by the beneficiary. That doesn’t mean that they can’t use the money or ever benefit from it. You can build in provisions that allow for specific expenditures such as education, health care or whatever you consider to be of most importance. But for large sums that may be needed for major purchases such as a home or a vehicle, it means that they’ll have to go through an independent trustee and ask for the money. In this case, choose a trustee that knows you and the family and would act as you would in a similar situation. This type of planning is not only for very wealthy people. It is appropriate for anyone who feels that protection may be beneficial.
John P. Napolitano CFP®, CPA, PFS, MST is Founder and Chairman of Napier Financial in Braintree, MA. Visit napierfinancial.com for more information. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Legal counsel should be consulted for specific advice or recommendations about any individual’s personal legal circumstances. Investment and financial planning advice offered through US Financial Advisors and Great Valley Advisor Group, Registered Investment Advisors.