It can be disconcerting when you have someone that is not a good money manager on your inheritance list.
This person may have come to you seeking financial assistance on multiple occasions over the years. There is no doubt that you want to leave them an inheritance, but what if they burn through it too quickly? They may have nowhere to turn when the going gets rough.
Fortunately, there is a relatively simple solution that you can utilize if you are in this position, and we will look at it in this post.
Revocable Living Trust With a Spendthrift Provision
A revocable living trust is a versatile estate planning tool that offers a number of different advantages. Even if you do not have a spendthrift in the family, you may find that this type of trust is ideal. We will provide a broader overview in the future.
When it comes to the guardrails for poor money managers, a living trust can often be the optimal choice.
The way that it works is you fund the trust, and you act as the trustee and the beneficiary while you are alive and fully capable of making sound decisions. You control all property in the trust in every way, and you maintain the power of revocation.
If you ever want to do so, you can dissolve the trust and take back direct personal possession of the property that you conveyed into it. This complete control can be comforting, and many people don’t realize that you do not lose access to the property in the trust.
Your loved one that has a history of questionable financial decision-making would be the beneficiary, and you would name a trustee to act as the administrator after you are gone.
It is possible to name someone that you know personally, but many people use a trust company or the trust department of a bank.
In the trust declaration, you include a spendthrift provision, and you leave instructions for the trustee to follow with regard to the way you want the assets to be distributed to the beneficiary.
There are various different ways to go about it, but one scenario would be to allow for distributions of earnings that are generated by the principal. In this manner, the trust would remain viable over the long haul.
You could choose to provide distributions of portions of the principal on some type of incremental basis when the beneficiary reaches certain age thresholds.
Of course, you could look at the long-term and name a beneficiary to succeed your first beneficiary. Under these circumstances, any remainder that is left after the death of the initial beneficiary would be there for the successor beneficiary.
No-Contest Clause
Someone that receives an inheritance with these strings attached may feel as though it is not fair and have the urge to challenge the terms. To account for this, you could include a no contest clause. This would trigger the disinheritance of the beneficiary if a lawsuit is filed to contest the trust.
Access Our Estate Planning Worksheet
You must be looking for information about estate planning if you are on this website, and there is a lot of content that you can explore. It is all offered free of charge, so you can build on your knowledge without reaching into your pocket at all.
One of these resources is our estate planning worksheet. This very useful tool has been carefully prepared, and you will learn a lot if you take the time to go through it. To get your copy, visit our worksheet access page and follow the simple instructions.
Schedule a Consultation!
We are here to help if you would like to schedule a consultation with a Smithtown, NY estate planning attorney. You can send us a message through our contact page to schedule a consultation appointment, and we can be reached by phone at or call us at 631-265-0599.
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