When to Distribute—and When to Delay—Family Wealth

Do you trust that your heirs are prepared for a lump sum all at once? Or would a slow drop be a smarter approach for them? Or maybe you’re not ready to make that call but are in the middle of your estate planning and need to make a call for now that you can change later on. When it comes to passing on your wealth, timing is everything—especially if you think your family isn’t quite ready for a big windfall.

Distribute or Delay the Wealth?

There isn’t an easy answer to this question because it depends entirely on your situation. Ask yourself the following questions when you’re trying to decide:

• How much and what types of assets are you planning to leave behind?
• How many beneficiaries do you have?
• How old and/or responsible are your beneficiaries?
• Do you see your relationship with them changing over time?
• Are there any special considerations for your beneficiaries, such as spending concerns, substance abuse, gambling issues, etc., that would affect your estate planning decision?

Understanding your circumstances can help you make better decisions about how you should distribute your wealth.

Consider a Revocable Trust

A revocable trust is a flexible estate planning tool that can be changed anytime. As the owner of the assets (and the trust’s grantor), you retain control over the trust and remain a trustee over your lifetime, according to Kristin McKenna, certified financial planner and president of Darrow Wealth Management in Needham, Massachusetts.

“Because of this, there are no adverse tax implications or benefits during life,” McKenna says. “But at death, assets passing through a revocable trust avoid the probate court process, saving time and money.”

McKenna suggests revocable trusts as a tool for anyone with probate assets, mostly non-retirement assets that are owned individually. Revocable trusts also work in certain situations where inheritances may be complicated, such as a second marriage or blended family.

Along with giving assets to family and friends, revocable trusts can be used to make charitable donations and provide for your pets.

Staggered Distributions

Staggered distributions are one way to delay the wealth to your beneficiaries. This is a common strategy for parents who want to teach their young children about financial responsibility.

“Avoiding a situation where a young person receives a large sum of money at once is often prudent because of the temptation to splurge on lifestyle items,” McKenna says, which is why she suggests setting up trusts with age-based and life milestones. This means crafting distribution plans when they reach certain ages and specific goals like graduating from college, getting married, and/or starting a family.

“It helps ensure heirs have additional access to funds if needed, and I think it helps parents feel connected to these future life events if they pass away prematurely,” McKenna says.

The Bottom Line

You’ll have to consider your family dynamics when you decide whether your heirs will get a lump sum or a delayed inheritance. Don’t rule out flexible tools like revocable trusts, which give you control over how your assets are managed. You can also stagger distributions so your loved ones are taken care of when they need it the most.

Be sure to talk to a financial advisor or estate planner if you’re having trouble finding the right solutions.