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Heirs with Money Management Issues

People signing estate planning documents with pens in hand

Estate planning is about many things, including protecting and providing for your family even after you are gone. As you start the planning process, you may reflect on the people you want to leave your property to and the effect your gift will have on them. No one is perfect and without fault. We all have struggles. As such, it is not surprising if one or more of your potential beneficiaries has money management issues that may be a concern for you. It is, after all, not an uncommon problem. Considering, however that you want to leave them an inheritance, the weight of money management struggles may feel more pressing. You may be hesitant to leave a beneficiary a lump sum inheritance if you can see that they already have difficulty managing their current finances.  You would want to ensure that your gift to them is not quickly exhausted. But how do you leave a beneficiary an inheritance while protecting the inheritance from the beneficiary’s potential to squander the money? Fortunately, with proper planning, you can consider the many estate planning options which can avoid such a conundrum.

Heirs with Money Management Issues

You may doubt your loved one’s ability to manage an inheritance because of a variety of reasons. They may be financially immature. They may struggle to budget. They may be in an unstable relationship or they may have addiction issues. This is all to say that there could be a number of reasons why you foresee issues with leaving your loved one a lump sum inheritance. To protect the inheritance from the money struggles of your beneficiaries, you should consider establishing a spendthrift trust.

To create a spendthrift trust, you provide that the “gift” to your beneficiary is held in trust. You designate the trustee who will administer the trust – a trusted person, or perhaps an institution, that has the financial capabilities to manage the trust funds. The trustee will be the manager of the trust; in effect, the gatekeeper of the trust. The trustee will be tasked with making qualified distributions from the trust to your named trust beneficiaries, according to the terms of the trust.

Your ability to set the terms of the trust is one of the many benefits of establishing a spendthrift trust. Instead of an inheritance passing to your beneficiaries in a lump sum, you decide on the terms as to when, how often, and under what circumstances distributions from the trust are to be made. This means you can provide that distributions from the trust are made in a manner that you deem appropriate. 

Drafted correctly, the spendthrift trust has the added benefit of offering protection from the creditors and potential creditors of trust beneficiaries. The assets held in a spendthrift trust are not owned by the beneficiary but by the trust itself. As such, a spendthrift trust protects assets from attack in divorce proceeding, or by creditors in a lawsuit or bankruptcy.

Estate Planning Attorney

If you worry about how your beneficiaries may handle receiving a lump sum inheritance, talk to the knowledgeable estate planning team at E.A. Goodman Law to discuss whether or not a spendthrift trust may be the right tool to address your concerns. Contact us today.

Posted in: Estate Planning