One of the reasons why you should discuss your unique personal situation with an estate planning attorney is because there are many ways to proceed. A lot of people think that there are constraints when this is really not the case.
You do not have to take risks if you develop your plan in a fully informed manner. With this in mind, let’s look at an estate planning approach you can take if you have a spendthrift on your inheritance list.
Revocable Living Trust
A relatively simple but highly effective spendthrift strategy can include the use of a revocable living trust. The way that it works is you fund the trust, and while you are alive and well, you can act as the trustee and the beneficiary.
You call the shots, and as the name indicates, you can revoke the trust entirely if you ever change your mind. There are no risks at all, but the rewards can be considerable.
To explain through the use of a simple example, let’s say that your grandson has always been a very poor money manager. He has come to you several times for bailouts, and you have been willing to help them out.
Naturally, you are concerned about your grandson burning through his inheritance too quickly. Going forward, he would have nowhere to turn for assistance so this can be a very disconcerting prospect.
As a response, you could establish a revocable living trust with your grandson as the beneficiary that will succeed you after your death. You name a trustee to act as the administrator, and this can be someone you know personally or a professional fiduciary.
For the purposes of this example, we will say that there are income producing assets in the trust. You could instruct the trustee to distribute the earnings that are generated by the trust to the beneficiary on an incremental basis.
If you choose to do so, you could give the trustee the latitude to make additional discretionary distributions. Because of this, it is important to choose a trustee that will not be tempted to distribute funds inappropriately.
This is one of the reasons why a professional can be a good choice, and if the trust is going to remain intact over the long haul, there would be no longevity concerns. Plus, a seasoned trustee working for a bank or trust company would have established investment options.
You can add an additional layer of protection through the inclusion of a spendthrift provision. This would keep the principal out of the reach of creditors seeking redress, but they would still have access to any assets that have actually been distributed to the beneficiary.
No-Contest Clause
Another type of safeguard that can be useful under some circumstances is a no contest clause. This would disinherit a beneficiary who tries to challenge the terms of the trust.
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Schedule a Consultation!
We have all been reminded that life can be fragile in recent months so you should take action sooner rather than later if you do not have an estate plan in place. You can reach our Kentucky office at 606-324-5516 (Ashland, KY) or 859-372-6655 (Florence, KY) if you would like to set up a consultation appointment.
The number in Charlotte or Huntersville, North Carolina is 704-944-3245, and if you would rather send us a message, there is a contact form on this website.
John’s practice focuses on the use of Wills and Living Trusts in Estate Planning to help individuals protect their families and preserve their legacies after their deaths, but his practice also focuses on the critical issues of protecting individuals with dementia or other diminished capacity, assisting individuals in qualifying for Medicaid and other government benefits to offset the costs of long-term care, and providing special needs planning.
John is admitted to practice law in North Carolina, South Carolina, Kentucky, and Ohio, and he is accredited by the Department of Veterans Affairs.
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