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How can I help ensure that my children won't squander their inheritance?

You may have heard the saying, "You need money to make money." While that may not be true in every case, if you already have some wealth, it can certainly help when you're trying to do something like complete your education, start a business or otherwise expand your portfolio.

Many parents and grandparents are quite aware of this reality, particularly with regard to their younger family members who are just starting out. But often there is more to consider than simply passing significant wealth to younger generations to help them build their own lives.

In fact, one study found that 70 per cent of wealthy families' estates are drained by the second generation, and 90 per cent of wealthy families lose their fortunes by the third generation.

Those figures suggest a harsh reality: often the younger generations are far from prepared to manage and grow the wealth that comes to them from their forebears.

However, there are estate planning tools that can be used to provide for your heirs while also helping to ensure that they spend money wisely and achieve their own personal milestones.

For example, you can set up a trust whose terms effectively create incentives for your loved ones to build their own wealth. This kind of incentive trust can stipulate that funds will be distributed when your child or grandchild achieves certain goals.

You can also set up a trust so that distributions begin only when your child or grandchild reaches a certain age.

Keep in mind, too, that there are various kinds of trusts, each with its own rules and uses. It is therefore a good idea to speak with an estate planning lawyer about which type of trust is right for you and your family.

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