Will an inheritance rob your heirs of drive or ambition?

Many people become wealthy because they have drive and ambition in spades. If you are one of them, you know about putting in long hours and finally seeing the light after setbacks galore almost made you give up.

Now you have a sizeable estate and wonder if leaving assets to your children, grandchildren, great-grandchildren and others such as nieces and nephews will rob them of their drive and ambition. You want them to be well-rounded people, not folks living off someone else's hard-earned money. At the same time, it may feel odd for you to have all this money and not share most of it with your family. With careful estate planning, you can assess what an inheritance might to do your heirs and find several middle grounds.

Give them "test money"

Will $1 million apiece cause your grandchildren to spend like crazy and make massive mistakes? You cannot know for sure, but a test can give you some clues. Perhaps give them $25,000 each now, and see what they do with that money.

Set up incentive trusts

You can set up trusts that give your heirs incentives to work smart. For instance, you can establish a trust so that if Grandchild A makes $55,000 a year, that is what the trust gives the grandchild for that year. If Grandchild B makes $30,000, that is what the person gets from the trust.

Of course, you know that earnings do not always equate to the education and effort put in. You can word a trust so that if your heir works for a nonprofit or in a field such as education as a teacher, the heir can get $X amount a year. The trust can also give incentives for the heirs to earn bachelor's and master's degrees.

Distribute money at set events

Young adults tend to be ill-equipped to handle large windfalls. You can set up trusts that provide for the distribution of money in stages as your heirs get older, become married or have children.

Create a spendthrift trust

With a spendthrift trust, you give your heirs just a set amount each month or year. The trusts can also have provisions for education payments and requirements such as staying drug-free.

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