01 Jul How and When Your Kids Get the Money: Avoiding the Too-Much-Too-Soon Inheritance Wipeout

What happens when your children inherit everything you built?

Do they use it wisely? Build on it? Carry your legacy forward?

Or do they blow through it?  Fast cars, failed businesses, doomed relationships, and family drama?

Every affluent parent with adult children asks the same silent question:

“Will my kids be ready when I’m gone?”

You’ve spent a lifetime creating something extraordinary: a business, a real estate portfolio, a financial legacy. But a poorly structured plan to transfer your wealth to your children can turn all of that into a fast-burning fuse in the wrong hands.Let’s talk about how to prevent that. How to build in discipline, flexibility, and protection so your money supports your children without ruining them.

The Cautionary Tale of the $8 Million Check

Let me tell you a story about “the Thompsons.” Dad was a brilliant entrepreneur. Built a business from nothing, sold it for over $40 million, and set up a trust for his kids. His mistake?

He left the trust with simple age-based distributions:

• 1/3 at age 25
• 1/3 at 30
• Remainder at 35

No oversight. No guidance. No protection.

His oldest son, Alex, received his first $4 million check on his 25th birthday. He quit his job the next day. Within three years, Alex had bought three luxury cars, invested in two failed business ventures with friends, divorced his first wife, and was deep into a lawsuit with a former business partner. And he picked up a sports betting habit. The money was nearly gone.

All because the plan trusted the calendar instead of preparing the child.

Smarter Ways to Pass on Wealth

Let’s talk about the three main strategies families use to distribute wealth to the next generation.  And how to use them intelligently, not automatically.

1. Ages & Stages Distributions

This is the most common, and the most dangerous, approach when done alone.

How it works:

Distributions are made when a child reaches certain ages (e.g., 25, 30, 35) or life stages (e.g., college graduation, marriage, starting a business, buying a home).

Pros:

• Simple to understand
• Allows for incremental access to wealth
• Encourages milestone thinking

Cons:

• Ties access to age, not maturity
• No discretion or protection if the child isn’t ready
• Exposes assets to lawsuits, creditors, and ex-spouses once distributed

Best Use:

Combine with trustee discretion or limits to create safeguards. Example: “Up to $250,000 for a first home, with trustee approval.”

2. HEMS Standard (Health, Education, Maintenance & Support)

What it is:

The trustee may make distributions for the beneficiary’s health, education, maintenance, or support. This is a widely accepted legal standard.

Pros:

• Keeps assets in the trust
• Provides a broad but defined standard
• Creditors and divorcing spouses generally can’t reach trust assets

Cons:

• Can create tension between trustee and beneficiary
• Requires a trustee who understands your intent and values
• Somewhat vague.  It requires careful drafting

Best Use:

For ongoing support without handing over large lump sums. Great for protecting kids from themselves and from others.

3. Fully Discretionary Distributions

What it is:
The trustee has full discretion to distribute (or withhold) funds as they see fit.

Pros:

• Maximum protection from lawsuits, ex-spouses and other threats
• Trustee can adjust to circumstances: addiction, lawsuits, bankruptcy, toxic marriages
• Allows flexible, tailored decision-making

Cons:

• Requires a highly trusted and capable trustee
• Beneficiaries may resent lack of access
• Less predictability for the child

Best Use:
When you have real concerns about a child’s maturity, lifestyle, or relationships. It puts the gatekeeping power in the hands of someone you trust.  We often recommend using an independent corporate trustee (like a trust company) to ensure the trustee has the necessary skills and experience to ensure it works as intended.

Striking the Right Balance: Access vs. Protection

The key isn’t to cut your kids off. It’s to give them access with intention.  To ensure the wealth helps them, without harming them.

Too much, too soon? You risk entitlement, poor decisions, and a legacy lost in a generation.
Too restrictive? You risk resentment, dependency, and friction between your children and trustees.

That’s why we craft custom distribution plans that combine all of the above:

• Structured “milestone” access
• Clear support for health and education
• Discretionary guardrails for life’s curveballs

We can also build in Trust Protectors (see our previous post) to step in if things go off course.

Your Family Deserves More Than Generic Templates

At Garza Business & Estate Law, we don’t do one-size-fits-all documents. We work with a select number of affluent families each year to help them protect their wealth, preserve their legacy, and build a plan that actually works in real life.

If you’re serious about making sure your children are . . .

Supported, but not spoiled . . .

Protected, but not punished . . .

Apply to work with us here:
https://lgarzalaw.com/schedule-online/

We’re selective about who we work with. Not every family is the right fit. But if you’re serious and ready to plan with the same intelligence you used to build your wealth, we’d love to hear from you.