You are not alone if you are a financially successful person with a spendthrift in the family, and this can present a significant estate planning challenge. On the one hand, the person in question has often come to you for financial assistance. You are always willing to help, but you will not be around forever.
If you leave a direct inheritance to this family member who is not good with money, the family member may burn through it very quickly. Going forward, there would be nowhere to turn for support so this is obviously a concern. Fortunately, there is an estate planning device you can use under these circumstances called a spendthrift trust.
A good way to protect a person who is not a good money manager is to make the individual the beneficiary of a spendthrift trust. Ideally, the trust would contain income producing or appreciating assets so there would be funds to distribute over the long haul. You could name a professional fiduciary as the trustee to effectively manage these resources.
When a spendthrift trust has been established, the beneficiary would have no direct access to the principal. If you create this type of trust, you would have the power to instruct the trustee how the beneficiary can receive distributions or otherwise benefit from property in the trust.
In addition to the concerns that you may have about the way that the beneficiary will handle an inheritance, you may also be concerned about creditors attaching the funds. This is another advantage of a spendthrift trust. Since the beneficiary cannot access the principal or promise it to anyone else, the creditors would not have access to the resources.
Many people allow the trustee to make larger, lump sum distributions to the beneficiary when he or she reaches a certain age. You do have to consider how you want the trust to terminate. You can name a successor beneficiary, and you could also name a successor trustee.
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This blog and our special reports are valuable resources, but the learning opportunities do not stop there. We have also developed an estate planning worksheet that can let you know where you stand with regard to the estate planning process. This is another complimentary resource, and you can head over to our worksheet download page to get your copy.
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The written information that we have on this website is carefully prepared, and we constantly update our blog as we add additional resources. Come back and visit us often, because there is always some fresh information to consume.
That being said, there is really no substitute for an in-person interaction with a licensed estate planning attorney. We go the extra mile to get out into the community providing free seminars, and you can learn a lot if you attend one of these sessions. To see the dates and obtain more detailed information, visit our seminar schedule page.
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