Bequeathing Your Values

Most arguments can be resolved by the parents talking to the family about what items each heir particularly covets. Invite your children to tell you and each other which objects they treasure, and try to work out a fair arrangement from there.

If that’s not possible, Lamm has some other tricks up his sleeve. One is simple: Draw numbers to determine who goes first, and let heirs pick items, one at a time, until every object has found a home. Lamm says he’s also resolved arguments by putting disputed items up for family or public auction. “We let family members bid on what they want first, and it’s charged against their share of the estate,” Lamm says. “Sometimes we’ll bring in an appraiser or an auctioneer.”

Trust in the Trust

Despite their best efforts, some parents have children who can’t be trusted to handle an inheritance responsibly. The children might be very young. They might have substance-abuse problems, shaky marriages (with spendthrift spouses and potentially expensive divorces), or trouble handling money responsibly. In those cases, a trust—which often limits heirs’ ability to spend an inheritance—can be the best way to leave money.

The type of trust you choose depends on your goal. Restricted trusts, as the name implies, let heirs use the money you leave—but only for the purposes you designate. Those might include getting an education, buying a house, starting a business, or paying medical expenses.

Some restricted trusts allow an heir to spend trust income as they like, but spend principal only for approved reasons. Or the trust’s income might also be restricted, accessible only for reasons specified by the trust. The latter type, says Meyers, is “the most restrictive kind of trust we see.”

A special-needs trust, which benefits a disabled person, is a specialized type of restricted trust. Its goal is to fund the disabled person’s needs while making sure that the beneficiary still qualifies for services provided by the government.

An incentive trust, by contrast, gives beneficiaries money when they reach specified goals. An heir might get a certain amount of money when she completes college, for instance. Others match the amount of money an heir earns. “It might say that, if they’re working, I’ll double it, and if they’re not working, they get zip,” Meyers says.

Restricted and incentive trusts are valid for the time period that’s stated in the trust documents. A trust might stay in effect for decades, passing to subsequent generations with the same terms in effect. Or the terms might change for later generations, with the first set of heirs spending only interest and later generations permitted to access principal.