It’s hard enough to deal with the topic of our own death let alone what will happen to our possessions once we pass away. Setting up a Family inheritance can get complex and technical. That’s why most people don’t deal with it.

The aftermath of what we do could lead to a potential mess as this 2012 article from Fox News demonstrates:

“Heirs of a wealthy New York art dealer were left a $65 million sculpture [named “Canyon”]…The bequest comes with a $29 million tax bill, but since the piece includes a stuffed eagle, it can’t be sold…federal law makes it a crime to possess, transport, sell or otherwise convey a bald eagle, whether it is alive or, as in this case, stuffed…The venerable auction house Christie’s placed the value of “Canyon” at zero. The IRS initially put it at $15 million, then jumped the figure to $65 million…”

Most of us will never deal with numbers that large. But it’s no wonder we get confused with our heirs, the courts and the IRS all to think about. It all seems like a big tangled mess.

So what should we do?

Well, the wrong answer is to ignore the wealth transfer process. With better planning, the wealthy art dealer mentioned in the article above could have avoided placing this conflict in the lap of her family. Perhaps asking some relationship and technical questions would have eliminated some confusion and helped the inheritance pass with greater ease.

Family Inheritance Relationship Questions to Ask

When you are ready to set up an inheritance, answer these questions first:

To whom should I leave money?

As I’ve stated in another post on inheritance and children, we only have a few choices when it comes to distributing our assets. We can leave it to our family, friends, charities and the government. One or all of them will receive something depending on the amount of wealth you’ve accumulated and how you choose to leave it.

First, let’s state the obvious: nobody wants more of their money going to the government. It’s tough enough to stomach paying taxes while we are alive. The thought of the government taking more at death through an Estate tax is reprehensible to most.

People regularly give to charities, their alma mater, or other non-profit ministries (like their church) at death. This is usually a way for people to bless institutions that touched them during their life or to give to causes they felt passionately about.

The final option is to transfer wealth to individuals, most normally family members but also perhaps friends. This would be seen as the most common option and the place most people initially start when planning who receives their assets.

How much should I leave to each recipient?

It’s such a loaded and complex question, and a highly personal one. So many variables come into play that a person will spend the vast majority of their time in the estate planning process sorting this question out.

Lets assume the government will be excluded from the equation because our net assets will not meet the taxable threshold upon our death. So, we can now focus on heirs and charities only. Some angles and questions to pursue that may help answer this question include:

– What do I value? (or what’s important to me?)

– Who needs the money?

– Who would be the best steward of the money? Will someone mishandle it?

– Where could the effective use of the money touch the most lives?

– What’s the emotional health (maturity) of my family members?

– Am I still responsible to provide for anyone? (like a young child or spouse)

– What causes have touched my life?

It’s a complete personal choice how you dole out the Family Inheritance. You may feel the breakdown should be 90% family and 10% to charities. Some divide it 50-50. Others give it almost all to charity. Some have even left millions to their pets.

How will this money impact the recipients?

This is a crucial component to consider. Will the assets given at one’s death change somebody’s life? This could be for better or worse depending on the financial maturity of the one receiving family inheritance.

For instance, take this fictitious (but real to life) example:

Kate and Alan have been struggling with money since their marriage started. Each was a single child who grew up in an environment where their parents gave them whatever they wished. They don’t plan out their monthly expenses in a budget and therefore spend more than they make each month. “The future will take care of itself” they say. So they live in the moment, buying whatever they wish and enjoying whatever pleasures they can find.

How will a sudden windfall of money affect this couple? It’s doubtful an influx of money is going to change their behavior. It will only enhance the poor views of and habits related to money management that are already present.

Should I tell my family what to expect?

I can see why you may want to keep this a secret. But do you really want them to be surprised? I would encourage you to communicate with the family ahead of time about your estate plans. In fact, I’d suggest this be an ongoing conversation that extends over years as you plan for the transfer of your wealth.

Having the inheritance talk should get many questions answered and allow a sense of peace to be present for the entire family. Death is emotional enough. There doesn’t need to be shock and conflict surrounding your last wishes.

Family Inheritance Technical Questions to Ask

This next set of questions deals with the legal technicalities of setting up an inhertance.

Do I need professional advice or counsel?

For most basic estates, a person can get by using some basic will software. Quicken WillMaker Plus and Legal Zoom are two good resources to consider.

However, if there is complexity to your estate, it would be advisable to consult an attorney, a financial adviser and even accountant. According to wills and estate planning guides, having these professionals look over or develop and estate plan would be advisable if you:

Are in a second (or later) marriage

Own one or more businesses

Own real estate in more than one state

Have a disabled family member

Still have minor children

Are dealing with a problem child

Don’t have any children

Want to leave some or all of your estate to charity

Have substantial assets in 401(k)s and/or IRAs

Were recently divorced

Recently lost a spouse or other family member

Have a taxable estate for federal and/or state estate tax purposes

The more complex the estate the more advisable it would be to consult a professional. It would be worth the money to pay their fees to do so.

Are the instructions clear?

Above all you want to avoid conflicts with the family inheritance. This can best be done through the use of a will. To die without a will takes all the control out of your hands and places it into the court system. This is surely bound to lead to family tension over who receives what.

Put as much detail into the will as is needed, even if it means listing who gets your collection of baseball cards. There should be as little ambiguity as possible for the executor who will be administering the estate.

You may also consider leaving a letter if there are some personal things to detail outside of the will. This may include a commentary about why you’ve chosen to divide the assets this way, some final thoughts to your children or a list of things around the house you want to make sure someone finds.

Will I be paying an inheritance (estate) tax?

You have a right to transfer property at your death. The amount of that property is subject to tax. Most simple estates will not require the filing of an estate tax return.

The IRS lists the filing thresholds for the estate tax. Being your research there. Then, as mentioned earlier, consult a few professionals if you have questions about your situation.

When should I pay out the inheritance?

This seems like an obvious answer – at death. I’ll need all my money until then. When else would I pay out a family inheritance?

How about before you die.

As I just pointed out, the government will tax individuals whose estate assets exceed the threshold set by the IRS. This tax may be unavoidable for some, while others will fall very close. To help avoid this tax, individuals can choose to give away some of their money during their lifetime, thus reducing the amount of their total assets at death.

Again, this value fluctuates year after year based on inflation rates. So research the amount for the current year. Gifts can also be given to charitable organizations, spouses, political organizations, and for medical and some educational expenses.

This has the added benefit of seeing people you love and organizations you cherish be blessed by and use our money before you die. If they don’t manage it wisely, it may make you reconsider leaving them large portions in the final will and testament.

Conclusion

In the end, it’s up to you who gets the wealth of your estate. If you need help, don’t be afraid to ask or pay for it. Bringing in the right type of advisers could prevent you from making some big financial mistakes.

Setting up a family inheritance requires a great deal of wisdom and preparation. It is necessary though no matter how much wealth you plan to transfer to the next generation. Your family will be hurting emotionally at your death. The last thing they need to worry about is what to do with your assets.

Leave a Comment or Answer a Question Below: What other questions should be asked in the estate planning process? Have you seen a family fight over a family inheritance? Have you had the “inheritance talk” with either your adult parents or your children?

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