For wealthy couples who are doing their estate planning, there can be some concerns over how beneficiaries will use their inheritance. Perhaps you are drafting your estate plan in your 50s, and you have a child who is technically a legal adult, but they are still in college. You are worried that, should they suddenly receive a large inheritance, they will not necessarily make wise decisions with that money.
Fortunately, there are some estate planning steps you can take to guide their decisions and protect them from a financial perspective. Often, rather than leaving them the money in your will, it can be helpful to put that money into a trust.
A spendthrift trust
One example is a spendthrift trust, which releases the money to the beneficiary over time. They may get a set amount that they can withdraw annually, for example, or they may get access to the funds at a specified age, such as 25 or 30 years old.
By spreading the money out, you help ensure that they cannot simply spend their whole inheritance quickly. You also ensure that they get the inheritance at an older age, when you may hope that they will make wise decisions, such as buying a home for their family or starting a business.
A discretionary trust
Another option is simply to pick a trustee who is older and who will make wise decisions that are in the beneficiary’s best interests. You can let this person use their discretion, so there are not any strict restrictions on how the money can be spent. But the trustee will make sure that the beneficiary does not waste it or make frivolous purchases.
Setting up a trust
These are just two examples of how you can use a trust to strengthen your estate plan. If you are interested in doing so, it can help to work with an experienced estate planning attorney.