When doing your estate planning, it’s a good idea to remove the rose-colored glasses and approach these matters realistically. Take a good, hard look at your potential heirs and assess their ability to successfully manage a large lump-sum of cash.
You may realize that, sadly, not all of your heirs will be good stewards of the inheritance you leave them. This does not necessarily cast aspersions on their characters, as some people just seem to let money slip through their fingers.
Consider a spendthrift trust
While you will physically be gone from their lives, your due diligence now in funding spendthrift trusts can prevent your beneficiaries from frittering away or losing their inheritances through bad financial moves and foolish choices.
When you fund a spendthrift trust, you choose a trustee to oversee the management of the principal and make scheduled disbursements to your designated beneficiaries. But at no time will they be able to access the principal. Neither will any of their spouses or creditors.
Protect your heirs from their worst inclinations
Spendthrift trusts are particularly useful with heirs who struggle with addictions to alcohol, drugs or gambling. While they may indeed dissipate their disbursements as they choose, you can make sure that they are not given enough cash at one time to do further harm to themselves.
Choose the appropriate trustee
In matters concerning a spendthrift trust, it generally is not a good idea to appoint one sibling over another as trustee. This also applies to parents being named the trustee over their children’s spendthrift trust. Doing so can create havoc in familial relationships and engender distrust and resentment. It is far better to preserve their existing relationships and name an unrelated third-party trustee to oversee the spendthrift trust.
Consider any restrictions carefully
That is really up to you. You can make a trust fairly restrictive or rather broad in scope. In fact, if you are worried that a beneficiary could use a disbursement to buy drugs and subsequently overdose, you could require the trustee to approve disbursements only for approved purchases. Your estate planning attorney can help you set up a spendthrift trust that reflects all of your concerns and protects your heirs from their worst impulses.