The idea of collecting an inheritance can seem, well, exciting. However, if certain protections aren't taken and strategies put in place, gaining an inheritance can cause other financial problems. Florida residents who are choosing beneficiaries as they write-up their estate plans may want to discuss inheritance with intended beneficiaries to ensure that necessary precautions are included in the final estate.
There are several issues that come with an inheritance. The first usually involves overspending due to a sudden influx of funds. Placing money in a trust with stipulations may help avoid this issue. Discussing future financial issues regarding an inheritance with beneficiaries may also help them make better decisions when it comes to spending those funds.
Another issue may involve the inheritance causing resentment among family members. While this may not totally be avoided, discussing an estate plan before it is put into effect can help family members know what to expect. Talking about it beforehand can also make sure final wishes are made known.
One other issue to consider is how an inheritance can affect other sources of income. Beneficiaries who are receiving income-base benefits -- such as disability benefits -- could stand losing those benefits if they are given a large lump sum of cash. It can be very difficult to get approved for these benefits again; so, instead of designating a lump sum, setting up a special needs trust can help avoid this problem.
Estate planning can take a while to ensure all aspects are carefully thought through. Including protections for intended beneficiaries and discussing inheritance with heirs is certainly something to consider when making final arrangements. This may seem like a daunting task for Florida residents who are working on their estate plans, but it may prove worthwhile in the end.
Source: U.S. News and World Report, "5 Inheritance Mistakes for Heirs to Avoid", Susan Johnston, July 15, 2014