Parents, grandparents and others with heirs who have less-than-stellar fiscal aptitudes face additional estate-planning challenges. On the one hand, they want to provide these heirs with financial resources. But on the other, they want to ensure that any bequests don’t become a loved one’s undoing.
It’s fortunate to recognize now that some or all of your potential heirs lack the financial savvy to responsibly navigate any future windfalls. You may want to consider a spendthrift trust to protect your heirs from themselves.
How it can work
A spendthrift trust is overseen by a trustee who invests and manages the trust’s principal assets. Then, at agreed-upon intervals — quarterly, semiannually or even annually — the trustee makes disbursements to the beneficiaries.
While there is no guarantee that the beneficiaries won’t indiscriminately blow these payouts, they will be unable to access and exploit the main assets of the trust. This ensures that money beneficiaries could fritter away in a couple of years can instead sustain them for a several decades — or even a lifetime.
Why it could backfire
Spendthrift trusts can engender bad blood between grantors and beneficiaries and also between co-beneficiaries. This is especially true if the grantor names a sibling or another co-beneficiary as trustee over one beneficiary’s share of the estate. Sometimes it is better to appoint a neutral trustee in those cases to avoid disrupting relationships.
For some beneficiaries, spendthrift trusts preclude them from ever learning to manage their financial affairs on their own. It’s a big decision to make, and ideally you will have a candid discussion with your beneficiary to explain to him or her why you have created the trust in this way. Your beneficiary may actually be grateful that access to the principal is denied.
These situations should be handled with a great deal of tact and finesse to avoid sending the wrong message after you are gone. If you are interested in learning more about spendthrift trusts or other estate planning documents, contact the Quinn Law Firm at 814-833-2222 and ask to speak to one of our estate planning attorneys.
Source: Morningstar, “Estate-Planning Tips for Parents of Spendthrift Children,” Christine Benz, accessed June 01, 2018