Death and money are two sensitive topics that many don't like to discuss, yet inheritance planning is an important part of managing one's finances. For those who have assets, planning a will is a crucial step in the process, while those who receive or expect to receive an inheritance should likewise seek specialized financial planning advice. By taking advantage of financial products and tax laws in inheritance planning, people can protect their own financial interests as well as that of their heirs. They can also prevent rifts between heirs by ensuring that everyone is informed of what to expect when the will is read.
Many financial planning services offer guidance in inheritance planning for those who wish to distribute their assets after death as well as heirs and potential heirs. Individuals with complex family relationships, such as remarriages and stepchildren, often need individualized inheritance planning so that their assets are distributed in accordance with their wishes. Similarly, when people inherit a large sum of money, they may be unprepared for investing an inheritance. The result is that the heir may end up spending the inheritance recklessly because he or she is unaware of the options.
Good inheritance planning will take into consideration the needs of family members as well as their specific situations. For example, it may make more sense in some families to create a generation-skipping trust that provides protection for the inheritance while still giving family members access to money. It is also possible for an heir who is facing serious tax consequences to disclaim an inheritance so that it is passed on to other successors, keeping the money in the family. Finally, by creating specific trusts with careful instructions on how the money is to be disbursed, those who leave money to heirs can prevent inheritance money from being wasted by heirs who are financially irresponsible.
It is always a good idea for families to communicate about inheritance planning so as to prevent conflict and hurt feelings. Including family members in inheritance planning can also make the process more effective. If parents are made aware of the financial situation and needs of their children and grandchildren, they may be able to make better decisions about the division of property or using specific types of trusts. Family members can also express their desire for particular family heirlooms, real estate, or other property. These items can then be specifically left to these family members in the will, preventing disputes later.