September 5, 2018

Those considering their legacy plans often wonder how to make sure the inheritance they give helps their loved ones to be better people. We all know of situations where the opposite has happened; an inheritance, distributed unwisely, was squandered away or led to bitter family feuds and broken relationships. One plan that can avoid these pitfalls is called the “integrity and initiative” plan.


Your primary goal as a parent is to help each child be a successful person—not just financially, but also in his or her career, family life and social status. While attorneys and CPAs are trained to help you transfer property to children, a good inheritance plan is much more than just transferring property. There are many plans that are successful in transferring property but lead to very bad results. 

Good planning transfers property at the right time, the right way and in the right amount so that it achieves a good result. While a good result cannot be guaranteed, the "integrity and initiative" plan will increase the probability of that favorable result.


The first strategy of the “integrity and initiative plan” is to spread the inheritance out over time. This gives children some time to learn.

Parents have usually acquired an estate over 20, 30 or even 40 years. If you ask a person of retirement age to recall their early years, they will frequently share stories about the challenges they faced. For most people of retirement age, those challenges were financial "bumps in the road" that were very educational. Without that education, they would not have been as successful in life or in their finances.

Children who will receive a substantial inheritance need time to learn. An inheritance can be stretched over many years to enhance the overall probability that it will facilitate the development of integrity and initiative.

A good "integrity and initiative" plan could transfer property in four ways:

  1. Gifts during life
  2. Principal after the parents pass away
  3. Income for a period of years
  4. Delayed principal


When should a parent start making gifts to children? The easy answer is as soon as the children reach the age of financial responsibility, usually in their 30s, 40s or 50s.

Harvard Study of 4,000 Millionaires Revealed Something Surprising About Money and Happiness

The study concluded that there is one thing that makes some millionaires happier than others: It is better to make millions than to inherit or marry into them. “Those who earned their wealth reported significantly greater happiness than those who primarily inherited or married into it. Of course, there are likely other differences between people who earned versus inherited their wealth that may contribute to these different levels of happiness,” the study wrote. But, researchers also argued that their findings have an important implication for the wealthiest–they should give their resources away. The study argues that doing so is better for the wealthy and their heirs. To find out more, check out this article in Inc.


At that time, parents frequently start by making gifts using the annual gift exclusion. This exclusion amount may be gifted with no tax or reporting to the IRS. The annual exclusion in 2018 is $15,000 per child and is adjusted every two to four years.

Generally, it is better to give property than cash, as cash tends to be spent more quickly. Regular gifts of cash may result in a child acquiring a taste for expensive items that are above his or her normal lifestyle.

By making gifts of stock, land or other types of property, parents encourage children to invest and build their assets. Therefore, a good gift is a gift of property.


The second gift strategy is to transfer principal after both parents pass away. This can be a bequest from the estate of the surviving spouse. The principal could also be a distribution from an insurance trust that pays to the children after both spouses have passed away. The transfer of principal could be a specific property such as a home, land or securities, or it could be simply a portion of the estate.


A very popular third option is to create a trust that pays income for a period of 15 or 20 years to the children. For larger estates, this is usually a charitable remainder unitrust. The trust is funded after both parents have passed away. It pays a five or six percent annual income to the children. In many cases, it is very advantageous to fund the trust with an IRA or other qualified plan. The trust earns income for the family for the selected number of years. At the end of the 15 or 20 years, the trust is then transferred to favorite charities.

The combination of some principal and income for a term of years is very helpful. Parents can treat their children equally; however, there are some children who may require a longer period of time to mature in their financial management. The combination of principal and income for a period of years allows these children the time to learn better money-management skills.


The fourth option is an additional payment of principal when the children have become more mature. Following the expiration of the payouts for the unitrust term of years, an additional amount can be distributed. This frequently is done through the "Wait a While" trust. Your attorney may have another name for that trust—the charitable annuity lead trust.

For the term of years that the children were receiving unitrust income under the third part of the plan, the charities receive the payouts from the lead trust. After the unitrust income payments have been made to children and that trust terminates, the children receive their delayed principal distribution from the lead trust.


A successful “integrity and initiative” plan is created by understanding the four transfer options and then setting goals. These goals will frequently include a target amount for the inheritance for the children at each level. In addition, it is useful to create a total inheritance target amount per child.

For example, one parent wanted their children to receive $50,000 each year in income. Because a unitrust funded with $1 million paying a five percent payout produces $50,000, she decided to set up a unitrust of that amount for each child.

Over the 20 years, the trust paid more than $1 million in income to each child with the remainder then distributed to charity.


It’s important to consider these options when developing your legacy plan. Establish the overall target inheritance for your child or children, and then consider one of these four options or combination of options to achieve all your objectives.