You’ve accumulated significant assets and resources during your time here on Earth. Once you pass on, you want the assurance that your heirs will be well cared for after you’re gone.
The problem is that not all heirs are well-served by unfettered access to large sums of money. In fact, the history books and gossip rags are full of cautionary tales of those who were undone by inherited money — Fred Trump (the president’s late older brother); RFK’s son David Kennedy; Anna Nicole Smith.
Fund a spendthrift trust for your heir
You certainly don’t want your heirs to face similar circumstances. If you have a son, daughter, grandchild or other potential heir who is lousy at money management or struggles with their sobriety, funding spendthrift trusts could be the solution to your estate planning dilemmas.
These type of trusts are particularly useful for younger heirs who may lack good fiscal management skills. But the reality is that many people fail to ever develop that skill set. in those situations, spendthrift trusts can also benefit adult heirs.
Protect heirs who are vulnerable
You may have a son or daughter who is married to a very controlling or even abusive spouse. You worry that their spouse could browbeat them (or worse) to make them access their inheritance. A spendthrift trust shuts that possibility down entirely. The funds will be under the control of a trustee and only disbursed under a predetermined schedule.
How much control can a trustee exert?
The level of control the trustee has over the funds are entirely determined by the trust grantor (that’s you). For instance, you may not want to put any conditions on the funds your heir intermittently receives.
Alternatively, you could theoretically make them pass a urine drug screen prior to each disbursement. You could specify the funds are to be used for your heir’s post-secondary education and that they must carry a 3.5 grade point average and graduate within a specific number of years.
Can you be too controlling from beyond the grave?
Your heirs may certainly perceive it as such. However, in almost all circumstances, you have the right to do as you will with your money and are within your rights to have pre-determined conditions.
With that said, it’s often better not to set conditions that are too harsh to meet. An heir could suffer an injury or have a condition that requires them to take pain medication that precludes their receiving any disbursements. A college kid could have a bad semester and then be unable to get the tuition to return for their degree. Still, the amount of control is a decision you make.
What about trustees?
One of the surest ways to foment dissension among relatives is to leave one in charge of the other’s money. Appointing an independent estate planning attorney, banker or investment adviser as trustee can preserve family ties.