Leaving some of your assets to your children after your passing can be worrisome. After all, there’s always the question if they can already manage the money without guardians. But there are ways to address this uncertainty.
Life is unpredictable; we never know when our last day is. So, if you have children or want children in the future, you might want to start planning for their security today. In this article, you’ll learn how to process your inheritance and when your children should receive this.
Placing Inheritance In A Trust
You must understand that you don’t have to grant the children their inheritance immediately. Before you pass, you have the option to place the money in a trust and decide at what age they can have access to this. Your children can avoid probate when your financial legacy is placed under a trust.
When your assets undergo the process of probate, they will be assessed to find out their value. A portion of the assets will be deducted to pay off taxes and creditors. That means your children will likely receive a smaller inheritance. But with trust, the children will receive the total amount of what you want them to have.
Using a trust is best if your children are not currently mature enough to make decisions about their money. You can nominate a Trustee who will hold onto the money until your child reaches a specific age, such as 18 or 21.
Upon Your Passing
Once you pass away, the children will get the total amount of their inheritance. Directly passing the money to them after your death is fast and convenient since your financial assets will be turned into a single transaction.
It’s also the obvious choice if you don’t want to give away the inheritance money too early while you’re still alive. Unfortunately, the inheritance is not safe from taxes even after your death. Federal state taxes will have to be paid by deducting it from your assets, especially if the inheritance is of high net worth. Your executor will oversee paying them and leave your family a smaller inheritance than you originally wanted.
In this case, you’ll need to consider another option to transfer your assets, such as using life insurance. Payouts from life insurance are tax-free because it is not a form of taxable income. Using life insurance as another way to pass inheritance minimizes estate tax and frees your heirs from paying inheritance tax.
It’s important to consider if it’s right to leave your children the amount of money you want. It could be too problematic if you chose to give an amount of money to a college student who is having a good time in college other than studying. Consider carefully if your child is ready to handle the inheritance.
Leaving Money Depending On Current Age
You can plan how your beneficiaries will receive their inheritances through different types of trusts. The type of trust that will hold the inheritance depends on the age of the heirs.
12 Years Old:
A lifetime trust will serve you and your beneficiary and last until their late 40s. Since the child is still a minor at this age, they rely on adults to oversee their needs. You can appoint an entity to handle and manage the money. At this point, it’s too soon to tell if the child can spend money wisely or imprudently. Nevertheless, the trust will keep the money until the age when they can be responsible with the use of money.
Trusts For 18-25 Years Old:
If your child is 18 years old, you can decide to keep their inheritance until they are 21 or 25 years old. The inheritance is placed in the “18-25 Trust.”
Depending on the size of the inheritance, amounts up to USD$12.06 million are exempted from taxes in the current year. No income taxes are coming from estates. Amounts exceeding USD$12.06 million are deducted from 18% to 40%.
Trusts For Adults:
You can also create a trust for your mature children. They can be at an age when they already have families, stable incomes, and manage their homes. The trust will grant them the inheritance outright. You also have the choice to divide it into installments or disbursements. It will save them from creditors and divorces.
Creating an estate plan for your younger beneficiaries becomes easier when using trusts as a means of protecting their interests and their futures.
Ultimately, the decision of when your children can receive their inheritances is up to you because there are means, such as trusts, that will protect the assets they are meant to have. If you think they are responsible enough, you can have it given to them immediately after your passing. If not, you can always nominate a trustee who will hold onto the money until your child reaches a specific age.