Teenagers and young adults are often ill-equipped to manage inheritances.

While some young adults and teenagers fully embrace financial responsibility and long-term planning, most focus on immediate gratification.

This is unsurprising, given that recent neuroscience research shows brain development is not fully complete before people reach their mid-twenties.

If you can leave an inheritance to your heirs, you have practiced responsible financial management, saving, and investment.

Unfortunately, it is not uncommon for heirs to swiftly squander inheritances built from hard work.

A story originally published on LearnVest.com and later republished byThe Week, "What blowing a $250K inheritance taught me," recounts the unfortunate experience of one young man from northwestern Illinois who quickly burned through his inheritance.

The author shares how he received a quarter of a million dollars at age 18 from a medical malpractice case for his mother.

Although these funds could have provided a solid foundation for his future, he quickly spent all the money.

Generally, sizable sums of money should not be left outright to teenagers or young adults.

Instead, parents and grandparents should take steps to protect the inheritances for and from their heirs through thoughtful estate planning with experienced estate planning attorneys.

Some heirs are likely to drain their inheritances without protections in place.

Not Protecting Heirs from the Inheritance is a Huge Mistake.

Having wealth is exciting at any age.

Unfortunately, wisdom to understand the value of money is generally not a quality found in teenage heirs.

The author of the article above received access to the trust fund and used it to enroll aimlessly in two universities, engage in impulse spending, and fund a lifestyle or parties and poor decisions.

Yikes!

Estate and Financial Planning is Good Parenting.

Parents teach their children values and personal responsibility to enable them to thrive in adulthood.

When parents die while their children are still relatively young, they are not able to provide support and guidance in the transition to adulthood and independence.

As a result, the parents should prepare to provide advice and guidance to their children even after they have died.

How can parents support their children as they navigate young adulthood and handle an inheritance responsibly?

Comprehensive estate planning is an excellent place to begin.

Trusts Help Protect Heirs.

An experienced estate planning attorney will likely recommend using a trust when preparing an estate plan to protect inheritances for and from loved ones.

One option is a testamentary or inheritance trust.

With a trust, you can add terms to the trust to govern the management and distributions until your heirs prove they are capable of handling the responsibility of the inheritance.

Why Choose an Inheritance Trust?

An inheritance trust provides asset protection, controlled distributions, and privacy.

By leaving inheritances to a trust, you can protect assets from lawsuits and creditors of heirs.

It may even be possible to reduce tax burdens.

Trusts also provide greater control over distributions.

Rather than giving inheritances in a single sum, you can specify the amounts to be received, terms for using the fund, and eligibility of disbursements.

Doing so can promote responsible spending and create more financial security.

Because last will and testaments must be filed with the probate courts to govern estate administration, they become public record.

Trusts, inheritances, and other family matters can be kept private during asset transfer.

Trusts Offer a Good Strategy for Every Family.

Trusts have various estate planning benefits for inheritances.

They can prevent teenagers and young adults from squandering the funds.

They can also help you meet your family's future needs while honoring your values and goals.

In conclusion, the story of the teenager who irresponsibly spent $250,000 is a cautionary tale.

The situation could happen to anybody.

Inheritance is about more than money.

It includes the values and wisdom of previous generations to support the well-being of younger generations.

What are Key Takeaways for Promoting Wise Management of Inheritances?

Inheritance planning is critical to guiding heirs in managing their financial gifts.

Inheritance trusts can safeguard against creditors, poor financial management, and various taxes to preserve your wealth and legacy for future generations.

Without clear communication and education, your heirs will flounder.

After working with an experienced estate planning attorney to secure your legacy, discuss your estate plans with your loved ones so they can understand your wishes, goals, and values.

References: The Week, originally published on LearnVest.com (Jan. 10, 2015) "What blowing a $250K inheritance taught me."

SmartAsset (Sept. 19, 2023) "How to Keep Money in the Family With an Inheritance Trust"

This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.