How to Leave Assets to Adult Children

When considering how to leave assets to your adult children, first decide how much you want each child to receive. Most parents want to treat their children fairly, but this does not necessarily mean they should receive equal shares of your estate. For example, you may want to give more to a child who makes less income as a teacher than to a child who makes more income as an owner of a successful business. Or you may want to compensate a child who has taken care of you during an illness or in your later years.

Some parents worry about leaving too much money to their children. They want their children to have enough money to use it for whatever they wish, but not so much that they will be lazy and unproductive. No one says that you have to give everything to your children, however. You may prefer to leave more to your grandchildren and future generations through a trust or make a generous contribution to a charity.

Next, decide how you want your children to receive their inheritances. You have several options from which to choose.

Option 1: Give Some Now

If you can afford to give your children or grandchildren some of their inheritance now, you will experience the joy of seeing the results. You could help a child buy a house, start a business, be a stay-at-home parent to your grandchildren, or even see your grandchildren go to college—and know that it may not have happened without your help. This would also let you see how each child might handle a future, larger inheritance.

Option 2: Lump Sum

If your children are responsible adults, this may seem like a good choice—especially if they are older and you are concerned that they may not have many years left to enjoy the inheritance. However, once a beneficiary has possession of the assets, the beneficiary could lose the assets to creditors, a lawsuit, or a divorce settlement. A spouse could even access any assets that are placed in a joint account or if the spouse has been added as a co-owner. If it bothers you that a son- or daughter-in-law could end up with your assets, a creditor could seize them, or that a child might spend irresponsibly, a lump sum distribution may not be the right choice.

Option 3: Installments

Many parents like to give their children more than one opportunity to invest or use an inheritance wisely, as it does not always happen the first time around. Installments can be made at certain intervals (say, one-third upon your death, one-third five years later, and the final third five years after that) or at certain ages (say, age 25, age 30, and age 35). In either case, be sure to review your instructions from time to time and make changes as needed. For example, if you live a very long time, your children might not live long enough to receive the full inheritance—or, they may have passed the distribution ages and, by default, receive the entire inheritance in a lump sum.

Option 4: Keep Assets in a Trust

You can keep your assets in a trust and provide for your children but not actually give the assets to them. Assets that remain in a trust are protected from a beneficiary’s creditors, lawsuits, irresponsible spending, and former and current spouses. If you have a special needs dependent or if a child should become incapacitated, the trust can provide for this child without jeopardizing valuable government benefits. If you have a child who might need some incentive to earn a living, you can match the income that the child earns. If you have a child who is financially secure, you can keep the assets in trust for your grandchildren and future generations and still provide a safety net if your child’s situation changes and your child needs financial help. This option gives you the most flexibility, control, and protection over the assets you worked a lifetime to accumulate and build.

While there is no one right way to leave an asset to an adult child, many choose to leave their assets in trust for the benefit of their children or grandchildren to protect the assets from creditors and ex-spouses. Regardless of your ultimate choice, this is an important decision that should be considered with input from your estate planning professional.