Will My Children Inherit Too Much?

As published in Kiplinger

If you worry about how your children will handle an inheritance, you're not alone. Luckily, you have options — from lifetime gifting to trusts — that can help.

Some parents worry that leaving too much money to their children could hinder their growth or well-being. But what constitutes “too much” is deeply personal.

For some, it’s about fostering a strong work ethic; for others, concerns may center around reckless spending, substance abuse, or values misalignment. Since no two families are alike, estate planning requires a tailored approach.

Lifetime gifting

One practical way to manage inheritance is through lifetime gifting. The annual gift tax exclusion allows individuals to transfer up to $19,000 per person in 2025 ($38,000 for married couples) without tapping into their lifetime exemption. Annual exclusion gifts can be in the form of cash, stock or other assets.

If you’d like to gift additional funds, you can dip into your lifetime exemption, which in 2025 is $13.99 million per person or $27.98 million per married couple.

In addition, you can also make payments directly for things like education and medical expenses, which don’t count against the annual exclusion or the lifetime exemption.

Gifting during your lifetime also allows you to observe how your children handle money. Do they spend it responsibly or splurge on luxuries?

One of our clients helped both of his adult sons purchase homes, despite differing financial circumstances. He gifted them equal amounts but was initially concerned that his son in a lower-cost city would receive “more than he needed.”

A candid conversation helped set expectations, ensuring the son appreciated the gift without viewing his father as an unlimited source of funds. This approach balanced fairness with financial boundaries.

Irrevocable trusts: The basics

For those who want more control over wealth distribution, irrevocable trusts offer a structured approach. There are many types of irrevocable trusts, so we can start with the basics.

It’s possible to set up an irrevocable trust during your lifetime or as part of your estate plan at death, and control how and when the assets are distributed. A trustee manages the assets for the benefit of designated beneficiaries according to the trust's terms.

Assets in the trust are generally protected from creditors. These trusts allow you to dictate when and how assets are distributed, improving long-term financial security for your heirs.

While irrevocable trusts provide structure, they also limit flexibility, making it important to consider provisions that account for future changes.

Incentive trusts

If you want to guide, rather than dictate, how your children use their inheritance, incentive trusts offer a middle ground. These trusts set conditions for distributions, such as achieving a certain income level, completing a degree or maintaining employment.

While they can reinforce positive behaviors, overly rigid restrictions risk causing resentment or becoming impractical over time.

Some trusts include stipulations around personal choices, such as religious practices or lifestyle decisions, but enforcing such provisions can be legally complex and emotionally fraught. Ideally, the objective is to encourage positive behavior, not micromanage or control every event.

The pitfalls of overly restrictive planning

While protecting wealth is important, too much control can backfire. One client inherited a sizable sum but was limited to withdrawing just 4% per year from an irrevocable trust.

Despite earning a decent salary, the restricted distributions weren’t enough to cover his family’s modest remodel of their home. The client ended up resenting his late mother for not believing in him to responsibly handle the inheritance.

This example underscores the importance of considering real-world financial needs, future inflation and potential lifestyle changes when building restrictions into irrevocable trusts.

Other vehicles

Many parents are happy to be generous with children and grandchildren if gifts are used for education. Add a 529 plan or plans to your gifting legacy as a means of building educational value for successive generations.

A 529 is not a trust, but it is a tax-free vehicle as long as funds are used for education expenses. We worked with a client who chose to fund 529 plans for his children, grandchildren, as well as his cousin’s children.

A dynasty 529 plan allows wealth to be transferred tax-efficiently while growing tax-free for future educational expenses. These plans can be passed down to children and grandchildren, helping families combat rising education costs while maintaining control over the funds.

Trust-owned 529s provide additional flexibility, allowing the trustee to change family beneficiaries and oversee additional contributions.

While tax implications may arise when changing beneficiaries or ownership, a dynasty 529 plan acts as a powerful tool for preserving wealth and reinforcing a lasting commitment to education.

Communication is key

We encourage clear, open conversations around wealth transfers. If you have specific concerns about your children’s financial habits, discussing your intentions in advance can help prevent misunderstandings and resentment.

Ultimately, your legacy is about more than money — it’s about how your loved ones think and feel about you when you’re gone.

With thoughtful planning and honest communication, you can create an estate plan that supports your children’s success while preserving family harmony.