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Should you leave assets to your children outright?

Perhaps the most common way to leave assets to heirs is simply indicating in the will which heirs will get which assets outright. For instance, you have $1.5 million saved up and you have three children. You leave all of them $500,000, a gift you know they'll enjoy.

This can work, and it often does for smaller amounts of money. However, there is a risk. Can your children handle the influx of cash? Are they going to waste it? Make sure you take the time to really consider where each of your children are at and what they can handle. This is especially true with significant estates.

For instance, perhaps you're leaving $10 million to each child. This is more than a gift. You anticipate that money lasting for generations. However, there is always the chance that your heirs will spend it on homes, cars, vacations and bad business ventures.

You spent your whole life saving that money to help not just your children, but also your grandchildren. In 10 years, the money is completely gone. The bank reclaims the homes and cars, and your children have nothing to show for it -- and certainly nothing to pass on to their own children.

Therein lies the value of a trust. If you leave the money to the trust, instead, you can dictate how it is paid out. You could stipulate that each child just gets $50,000 per year, for instance. The bulk of the unpaid trust then passes on to your grandchildren when your own children pass away. You guarantee that, even if your child wastes his or her annual payments, something will remain. Your true wishes are honored.

Make sure you know all of your options when doing your estate planning. Don't just do what is most common. Do what works best for your family.

Source: Forbes, "7 Big Estate Planning Mistakes: Leaving Assets Outright To Adult Children," Bob Carlson, March 06, 2018

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