The Sixth Pillar of Asset Protection is that your assets must also be protected from the beneficiaries’ mismanagement of them. Inheriting an estate can be an exciting and rewarding experience, but it can also cause some unexpected complications. Your legal planning should set your heirs up for success. With proper planning, you can save your heirs from making costly mistakes or unexpectedly facing difficult decisions.
The Sixth Pillar of Asset Protection: Don’t Let Your Heirs’ Emotions Drive Their Decision Making.
Many people, when inheriting an estate, can let their emotions get the better of them. It takes time for your next of kin to think through how to manage an inheritance responsibly. Unfortunately, it takes a lot less time to spend the money than to get over the emotions of losing a loved one. And your loved ones can spend their inheritance faster than it takes to get over the excitement of suddenly having a bunch of money. To avoid making decisions that could have lasting financial ramifications, it is best if your estate plan provides your heirs with a way to take a rational approach and separate emotions from the process.
Very few asset protection attorneys worry about what will happen to their clients’ money if the client passes away. We think that’s just short sighted. Sure, it helps these law firms and asset protection companies make a fortune selling services. But they are doing their clients a disservice.
We named our law firm Sudden Wealth Protection Law because we think protecting your heirs from squandering their inheritance is a worthy goal. And unfortunately, many other estate and asset protection attorneys completely ignore this issue.
Not understanding how taxes and fees might affect the value of the inheritance.
Not only does an inheritance come with the responsibility of managing money, but it also comes with taxation. Depending on the size and structure of the estate, this could mean state taxes, inheritance taxes, or even federal estate taxes. Most heirs are unprepared when dealing with these costs. They fail to factor them into their plans when considering how they want to use their inheritance. Your legal plan should take a more informed approach. This will ensure that your loved ones can maximize the value of their inheritance.
Failing to plan for long-term investments or protection of assets.
Many people assume that they can use an inheritance for short-term consumption, such as luxury items or vacations. While it is possible, investing your inheritance in assets that can provide long-term upside, such as real estate or mutual funds, is a much smarter approach. Additionally, not taking steps to protect the funds may leave them susceptible to creditors and other unexpected liabilities. Ensuring that your heirs invest and protect their inheritance should always be part of your plan.
Not seeking professional financial advice before making decisions about the money.
Many people who inherit money assume that they should manage their inheritance alone and without professional guidance. However, engaging a qualified financial advisor will ensure that their money is working for them by maximizing returns while reducing risk. A financial advisor can also create realistic goals for the inheritance and develop a plan to achieve them. Working with a professional who understands both the short-term needs of heirs and long-term interests of inheritors can ensure that beneficiaries maximize their inheritances now, while planning for the future. (Again, most asset protection plans completely ignore this.)
Spending too much, too quickly instead of taking care to reduce expenses over time.
One of the most common mistakes made when inheriting money is spending too much, too quickly. This is especially true with large inheritances. Instead of making impulsive purchases, heirs should take time to determine if and how much of their inheritance they can sustainably afford and set aside money for emergencies and long-term financial goals. Heirs should also be mindful of taxes that they need to paid on inherited income – such as estate taxes – and create a budget to consider these costs in their spending plans.
And again, most asset protection plans only focus on protecting your money during your lifetime. Asset protection trusts and other techniques provide zero protection from your heirs squandering their inheritance.
Do you want to protect your money AND also set your heirs up for success?
Give us a call so we can give you a holistic money protection solution that complies with the Sixth Pillar of Asset Protection. We can help you implement strategies for protecting your heirs from their own poor decisions. Call us at 602-443-4888.
