How to Make Sure Your Kids Don’t Blow Their Inheritance

As parents, we work hard to build financial security not just for ourselves but for our children’s future. However, a common concern we hear from clients at Vollrath Law is: “What if my kids aren’t ready for a large inheritance?” This worry is completely valid. Studies show that nearly 70% of families lose their wealth by the second generation and 90% by the third.

The good news? With proper estate planning, you can protect your hard-earned assets and ensure they benefit your children long-term, even if your heirs lack financial maturity or face other challenges. Let’s explore practical solutions to prevent your children from squandering their inheritance.

Why Children Might Mismanage Their Inheritance

Before diving into solutions, it’s helpful to understand why inheritances sometimes disappear quickly:

• Lack of financial education: Many young adults haven’t developed strong money management skills
• Emotional spending: Grief can lead to impulsive financial decisions
• Pressure from friends or romantic partners: Social influence can lead to poor choices
• Substance abuse or gambling issues: Addiction problems can rapidly drain funds
• Creditor problems or divorce: Outside parties may gain access to inherited assets
• Immaturity or poor judgment: Some heirs simply aren’t ready for sudden wealth

Effective Estate Planning Strategies to Protect Your Children’s Inheritance

1. Create a Trust with Spendthrift Provisions

A trust with spendthrift provisions is one of the most powerful tools for protecting inheritance. Under Florida law (Section 736.0502, Florida Statutes), a spendthrift provision prevents beneficiaries from transferring their interest in the trust and protects the assets from creditors.

Here’s how it works:

• Assets remain in the trust rather than going directly to your children
• A trustee (not your child) controls when and how distributions occur
• The inheritance is protected from your child’s creditors
• Your child cannot pledge their inheritance as collateral or sell their interest

For example, instead of your 25-year-old son receiving $500,000 at once, the trustee might distribute funds for education, healthcare, or a down payment on a home—but not for a sports car or extravagant vacation.

2. Establish Age-Based Distributions

Another effective strategy is to distribute inheritance in stages as your children mature:

• Partial distributions at milestone ages: For example, 1/3 at age 25, 1/3 at 30, and the remainder at 35
• Increasing percentages: Small distributions in early adulthood with larger portions as they mature
• Education incentives: Additional distributions upon completing college or graduate school

This approach gives your children time to develop financial responsibility and reduces the risk of them wasting the entire inheritance at once.

3. Provide for Professional Management

For larger estates or when children have limited financial experience, consider:

• Appointing a professional trustee: Banks, trust companies, or financial advisors can manage assets objectively
• Co-trustees: Pair a family member with a financial professional for balanced oversight
• Trust protectors: Individuals with authority to replace trustees if necessary

Professional management helps ensure investments are handled properly while providing an objective third party to evaluate distribution requests.

4. Include Incentive Provisions

Trusts can include provisions that encourage positive behaviors:

• Education incentives: Additional distributions for completing degrees or professional certifications
• Income matching: The trust matches a portion of your child’s earned income to encourage work ethic
• Charitable involvement: Provisions that reward philanthropy or community service

These provisions help instill values while protecting assets from impulsive spending.

5. Consider a Lifetime Trust

For maximum protection, especially for children who may never develop strong financial skills, consider a lifetime trust:

• Lifetime income: Provides regular income throughout your child’s life
• Protected principal: The original inheritance remains intact
• Ultimate beneficiaries: You determine who receives the remaining assets after your child’s lifetime

This approach ensures your child will always have financial support while preserving wealth for future generations.

Beyond Legal Structures: Preparing Your Children

While legal protections are essential, equally important is preparing your children for their inheritance:

• Open communication: Discuss money management and your estate plan (at an appropriate level)
• Financial education: Consider gifting financial literacy courses or working with a financial advisor
• Gradual responsibility: Give children increasingly complex financial tasks as they mature
• Demonstrate values: Model charitable giving and responsible financial management

Finding the Right Balance for Your Family

There’s no one-size-fits-all approach to inheritance protection. The right strategy depends on:

• Your children’s ages, maturity, and financial responsibility
• The size of your estate
• Your family’s unique dynamics and values
• Each child’s individual needs (some may need more protection than others)

At Vollrath Law, we help Central Florida families create customized estate plans that protect inheritances while reflecting family values. Our attorneys work closely with you to understand your children’s unique situations and design solutions that provide both protection and opportunity.

Take Action to Protect Your Legacy

Don’t leave your children’s financial future to chance. With thoughtful estate planning, you can provide guidance and protection that extends beyond your lifetime.

Contact Vollrath Law today for a consultation to discuss strategies for protecting your children’s inheritance. Our experienced estate planning attorneys will help you create a plan that ensures your legacy benefits your family for generations to come.

This blog post is for informational purposes only and should not be considered legal advice. For legal advice specific to your situation, please consult with an attorney.