Is There Such Thing as Leaving Your Child Too Much Money?

Is There Such Thing as Leaving Your Child Too Much Money?

Are you going to leave your children too much money? It's a nice problem to have.

And it's a problem faced by some of the country's uber-wealthy, whose plans for inheritance may be changed by new estate tax laws that took effect January 1.

If Congress hadn't taken action, parents would have been able to keep from paying estate taxes on $1 million ($2 million for couples), but would have paid 55% taxes on anything over that amount. With the new rules, parents can avoid estate taxes on $5.25 million ($10.5 million for couples) but must pay 40% on anything over that amount.


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Yahoo Finance reports that the increased limit on tax-shielded inheritance is making ultra-wealthy parents think twice: How much money can their children handle? According to the president of Bank of America's private wealth-management unit, transferring wealth to the next generation is a primary concern among higher-income clients. While they have the money to give, they aren't sure their children are ready to receive it. After all, if they give Junior more money than he will ever need, will he feel free to spend his life surfing in Rincon?

There are multiple ways to get around situations that the parents probably perceive as less-than-ideal. Yahoo Finance points specifically to silent trusts, where the recipient doesn't know about his or her inheritance for a set number of years, which encourages them to work hard into adulthood and not depend too much on their inheritance. There are also nonreciprocal trusts, where the surviving spouse is designated as a potential beneficiary and therefore can exercise control over how the money is distributed after the first spouse's death.

RELATED: Wills & Trusts 101

Although these concerns may seem like problems for only a fortunate few, the idea of helping your child develop a healthy relationship with money is one we all face. We all worry about spoiling our kids, and concern over how to address finances with our children (right down to whether we should give them an allowance or how many gifts to give them) is universal. After all, we want to give them everything--but can we trust them with it?


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