What's the best way to leave money to my children?
David TalleyUpdated December 10, 2025
Quick Answer
Consider age-appropriate distributions rather than lump sums—many parents use trusts to distribute assets in stages (25%, 35%, 45%, or over time). Life insurance can provide immediate tax-free funds. For retirement accounts, understand the 10-year distribution rule for inherited IRAs. Roth accounts are particularly valuable to leave to heirs.
Leaving money to the next generation involves more than just naming beneficiaries. Let me walk through the considerations.
The fundamental question:
Should your children receive everything immediately, or would structured access be better? Most financial planners recommend against lump-sum inheritances to young adults.
Structured distribution options:
Age-based stages:
- 1/3 at 25, 1/3 at 30, 1/3 at 35
- Full access at 40 (or whatever age makes sense)
- Requires a trust to implement
Purpose-based access:
- Education expenses: Available immediately
- Home purchase: Available with trustee approval
- Living expenses: Discretionary distributions
- Remainder at specified age
Outright distribution:
- Simple, no ongoing trust administration
- Appropriate for mature adult children
- Risk: Creditors, divorce, poor decisions
The inherited IRA problem (SECURE Act):
Non-spouse beneficiaries must now empty inherited IRAs within 10 years. For large IRAs inherited by high-earning children, this can trigger significant taxes. Roth conversions during your lifetime can help—your children inherit tax-free.
Life insurance considerations:
- Provides immediate liquidity
- Proceeds are income-tax-free
- Can equalize inheritance if one child gets the business
- Consider an ILIT for estate-tax-free proceeds
What we see go wrong:
1. Outdated beneficiaries (ex-spouses, deceased relatives)
2. Lump sums to unprepared heirs
3. No plan for minor children (court may appoint a guardian for their money)
4. Forgetting about digital assets
The conversation:
This is an area where family dynamics matter as much as tax efficiency. We help clients think through not just the "what" but the "how" and "when."
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