March 2004 " Stretching and Protecting Inheritance"

PLANNING FOR WEALTH AND SECURITY
By attorneys Jennifer and Jeff Hawkins

STRETCHING AND PROTECTING INHERITANCE

Entrusting inheritance to family members requires some thought about how family members will manage the money. You’ve worked hard for your money and a poor steward can blow it in no time.

Jesus Understood This Problem

Jesus gave a parable about a wealthy man who put three servants in charge of managing money, according to the abilities that he believed that they possessed. The two most talented servants invested the money carefully and increased their master’s wealth. The third servant hid the money away to protect it and caused it to earn nothing during the master’s long absence. In Jesus’ parable, the master rewarded the two savvy servants and punished the foolish servant for burying the money.

Drugs, Alcohol, Gambling & Pornography

Drugs, alcoholism, gambling addiction, and pornography addictions are destroying families and wealth all around us. Some people are beginning to plan their estates to protect wealth from these cancerous vices. A well crafted estate plan can protect money from being squandered by drug addicts and alcoholics. The money can also be used as an incentive for addicted family members to clean up their lives and qualify themselves for inheritance.

Credit Cards

Credit card debt is becoming a problem for many people nowadays also. Some estate plans provide protections that allow family members to receive money, but prevents creditors from taking their money.

Grandchildren Suffer

Grandchildren sometime suffer the consequences of their addicted parents’ behavior. Therefore, many grandparents are making estate plans that preserve wealth for their grandchildren instead of letting their children squander the money.

Stretching & Making It Last

The new retirement plan rules make it easier than ever for families to stretch wealth over multiple generations and increase its value with time. A retirement plan earns money on a tax-deferred basis. This means that money invested in a retirement plan earns income that does not have taxes taken out of it and the retirement plan grows much faster than a normal investment plan because the tax money continues to earn new income as it is compounded into the retirement account. Many retirees are setting up plans to enable their children to continue withdrawing small amounts of money from the plan after the retirees’ die, without liquidating the plan and paying exorbitant taxes. In some cases, retirees are setting up such plans for their grandchildren causing enormous wealth to grow for the grandchildren to enjoy as their own retirement plans many years in the future. Such plans, called “Stretch IRAs”, require careful planning and document preparation.

A properly designed estate plan is very important. Appropriate trust agreements and wills can help ensure that future generations of family can build upon their ancestor’s work and be financially sound.

THIS ARTICLE IS NOT LEGAL ADVICE. ALWAYS CONSULT AN ATTORNEY DIRECTLY BEFORE RELYING UPON THIS ARTICLE OR CHANGING AN ESTATE PLAN.