Did you know that an estimated 70% of inheritances are wasted by inheritors? That's a staggering statistic! Protect your money from being wasted on silly things like video games by learning how to protect it.
How to control how heirs spend your money?
As we mentioned in the previous post, there is a difference between strong and weak estate planning. If you're not careful, your heirs may spend your money more quickly than they should. Here's how to help control spending:
1. Make a budget for your family. Determine how long you want to support them, and come up with an annual budget that fits in with your needs. After all, they're not just living off you--you have to build in some extra spending power so that the children can grow into their own financial lives, especially if one of your goals is to keep them from living in your house forever.
2. Make an investment plan for the money that doesn't go toward basic support and living expenses. Dedicate some of it to long-term investments and let heirs make their own decisions on what they’d like to do with it. But beware: giving your heirs the power to spend this money gives them the responsibility of making sound financial decisions.
3. Find an executor who understands your goals and intends to carry them out, but be careful about how you choose an executor. If there are several people interested in being your executor - say, one child is more financially savvy than another - go ahead and appoint the more financially-savvy child. Not only is it a great way to teach all your children about financial responsibility, you’ll be able to rest assured that your estate will be managed well.
4. Avoid wasteful spending while you're alive! That means no excessive vacations, fancy cars, etc. Money doesn't grow on trees. You worked hard for it and it should be treated as such. The more you leave behind, the less there is to help your children (and future generations) grow and prosper financially.
5. Make sure that heirs know what you do with your money before people start talking about inheritance laws in Australia . The only way they'll know how to responsibly manage your estate is if you spend less than you make. If everyone's on the same page, then no one will be surprised when you leave behind a smaller fortune than expected.
6. Only give away money if it isn't needed for basic support and living expenses. Every cent that leaves your pocket means less money left behind for your heirs when you're gone.
Have a will
Make sure that you have a will in place before death. A living trust can work too, but there are drawbacks to this type of will, depending on how many assets you have and who your beneficiaries are.
Keep your estate in the family
This way, the family will inherit all of your estate after death.
Pay taxes on your estate
When you sign over money to someone else, you have to pay taxes on that amount of money as if it had never belonged to you.
Keep your estate under the limit of $5,340,000 (in 2010) for federal estate taxes
If you go over this amount, then you'll have to pay a huge tax on it. Adjust accordingly. For example, if your assets are worth more than $10 million, put them in a living trust before you die, or otherwise put them in the name of your spouse (or someone else if they're receiving property through a living trust).
Don't let people bequest money to themselves
For example, don't make it so that one child is the heir to all assets except for $1 million. Make sure that when you die, only your family inherits your will
If you want to bequest money to someone who isn't in your immediate family, then use the Uniform Transfers to Minors Act, which is a way of giving assets away so that there's no tax responsibility associated with it when they go over $15,000.
Don't let heirs bequest money to anyone else
For example, if you're leaving money for charity, then don't let your kids leave any of that money to their friends. This will end up saving the estate taxes that would otherwise need to be paid on it at death.
Don't let your wishes come back to bite you. Don't be afraid of leaving an inheritance, but also don't leave one behind if it's not necessary. Leave the smaller estate possible and everyone will be better off for it!