Passing your estate to an heir with credit problems, a shaky marriage, a gambling or alcohol addiction, or any other concerning situation might not only lead to that wealth being squandered, but the inheritance could worsen destructive behaviors.
Of course, you don’t want to disinherit your child(ren) simply because of their personal challenges. There are potential solutions that allow parents to control and incentivize behaviors long after they are gone, helping ensure that a troubled child’s inheritance won’t be misused.
You do not want to avoid or delay creating a plan hoping that your heir’s issue will go away. This could result in you passing before any plans have been set and the inheritance could be given without restrictions.
A trust is one idea to consider, since it can pass wealth to an heir while maintaining control over the how, when, where, and why the funds can be accessed.
When establishing such a trust, you can appoint a trustee, who is typically an independent, third party (e.g., trust company) or family member. Appointing a family member, however, may be fraught with problems. Hypothetically speaking, who do you think may be better able to resist the pleadings of a desperate beneficiary? A close relative or a corporate entity?
Furthermore, the trust can specify the precise circumstances under which money will be paid to its beneficiary, or it can specify that the trustee will retain complete discretion in the disbursement of funds.
Trusts can also include incentives, such as requiring drug or alcohol testing before the funds are paid out, or perhaps, that a lump-sum payment be made only upon graduation from college.
To ensure that an heir is committed to change, lump-sum amounts can be paid out after prescribed periods of time, (e.g., five years of sobriety). To encourage your heir to seek gainful employment, the trust might pay out a dollar for every dollar earned in wages. Alternatively, the trust can be written whereby payments are made directly to service providers, like a landlord or utility company.
Trusts can be flexible in their design, but before moving forward with a trust, consider working with a professional who is familiar with the complex rules, regulations, and tax implications.
If you would like an introduction to a legal professional who can assist with a trust, please let us know.