One of our advisors recently sat down with a long-time Scottsdale client who had just retired. She'd done everything right: saved consistently, planned her income, organized her accounts. But one thing was keeping her up at night.
Her adult daughter.
"She's wonderful," the client told us. "But she's never been good with money."
If that sounds familiar, you're not alone. And there are real, practical ways to protect both your legacy and the people you love most. The real question is: where do you start?
It Starts with Getting Organized
Before you can protect anything, you need to know exactly what you have. That sounds simple, but most families have accounts scattered across three or four institutions, old beneficiary forms that still name an ex-spouse, and no central record of login credentials.
At American Retirement Advisors, we call this the "Prepare" step of our inheritance planning process. We use something called the BeneficiaryBox: a fireproof, waterproof box with a color-coded filing system and four hours of coaching to document everything your family would need. We often ask our clients: "If you couldn't access your accounts tomorrow, how many people could step in with 100% confidence?"
Most people answer zero.
Protecting Your Kids (From a Lump Sum)
If you have an adult child who struggles with money, leaving them a large inheritance all at once can do more harm than good. That doesn't mean you leave them out. It means you build a smarter delivery system.
This matters even more today because of the SECURE Act's 10-Year Rule. Before 2020, your heirs could "stretch" an inherited IRA over their entire lifetime, taking small distributions each year. Now, most non-spouse beneficiaries must empty an inherited retirement account within 10 years of your passing. For a child who inherits a $500,000 IRA, that could mean $50,000 or more in forced taxable income every year on top of their own salary. Without a plan, the tax bill alone can wipe out a significant portion of the inheritance.
A few options families use:
- Structured trusts with controlled distributions. Instead of one big payout, the trust releases money monthly or quarterly. Your child gets ongoing support without access to the full amount at once. These trusts can also help manage the 10-Year Rule by pacing withdrawals strategically to minimize the tax hit across those years.
- Trustee oversight. You name a trusted person, whether a family member, attorney, or professional, as trustee. They manage distributions based on guidelines you set while you're still here to set them.
- Incentive provisions. Some trusts tie distributions to milestones like steady employment or completing a financial literacy course. These aren't meant to punish. They're designed to encourage.
However, protecting your heirs is only possible if your own foundation is secure.
Your Retirement Comes First
In this specific case, the client was managing $360,000 across several retirement accounts. Rather than lumping everything into one place, we helped her build a structured income plan using three types of money:
- Yellow money is safe and liquid for daily needs. Think of a yellow traffic light: proceed with caution. This is your emergency fund and short-term cash.
- Green money is guaranteed income you can't outlive. Green means go. It keeps flowing no matter what the market does.
- Red money is growth-oriented, invested for the future. Red signals risk. It has the highest potential return, but it requires patience and a longer time horizon.
That structure doesn't just protect her retirement. It protects what she passes on.
Retirement accounts have specific beneficiary rules that affect how your heirs receive the money and when they'll owe taxes on it (the IRS has detailed guidance on inherited IRAs; search "inherited IRA" at irs.gov). Because of the 10-Year Rule, how you title and structure your accounts today directly shapes the tax burden your children will face.
One thing worth knowing: not all accounts are treated the same when you pass them on. With a taxable brokerage account, your heirs receive what's called a "step-up in basis." That means the IRS resets the value of those investments to the market price on the day you passed. All those years of growth? Your heirs owe zero capital gains tax on it. IRAs don't get that benefit. Every dollar your child withdraws from an inherited IRA counts as ordinary taxable income. For families with significant assets in both account types, this distinction can shape the entire inheritance strategy.
The best inheritance plan starts with making sure you don't run out of money first.
What to Do This Week
- Gather every account statement, insurance policy, and beneficiary form you have. Put them in one place.
- Ask yourself: if something happened to me tomorrow, would my family know where to find everything?
- If you're concerned about how a child or family member would handle an inheritance, talk to an attorney about a trust with distribution controls. Your financial advisor can help coordinate this.
If this sounds like your situation, that's exactly what we help families sort out every day at American Retirement Advisors. Give us a call. No pressure, no pitch. Just a conversation about making sure your plan works for everyone you love.
Easy Eddie's Take
Quick story. I talked to a family last year where Dad left everything in a traditional IRA. Roughly $400,000. His two kids had to split it and empty the whole thing within 10 years because of the SECURE Act. Both were still working, earning solid incomes. That inherited IRA money got stacked on top of their salaries and pushed them into a higher tax bracket. By the time Uncle Sam took his cut, they kept about 65 cents on every dollar Dad left them.
Dad didn't do anything wrong. He just didn't know the rules had changed.
The move most people miss? Ask your advisor to run the numbers on converting some of your traditional IRA to a Roth while you're still here. You pay the taxes now at your rate. Your kids still have to empty the inherited Roth within 10 years, but every dollar comes out tax-free. That changes the entire math. It's one of the most powerful inheritance plays on the table, and most people never think to ask about it.
If you're sitting there thinking "I really need to get this sorted," just pick up the phone. The team at American Retirement Advisors does this every single day. No cost, no pressure.