Parents and grandparents may love all their progeny equally (or not), but they are also uniquely familiar with their weaknesses and liabilities. The truth is that not every potential heir is equipped to deal with receiving a large inheritance at certain points in their lives — if ever.
Read on for more information about one possible solution for this estate planning dilemma.
What spendthrift trusts are and do
These are just like other trusts, except the trust grantor appoints a trustee who manages the fund disbursements to beneficiaries according to a preset schedule determined by them in their lifetime.
Who benefits from these arrangements?
Grantors often use these for heirs who have proven incapable of good fiscal management. This could be due to substance abuse or gambling addictions or just naivete with money or when encountering unscrupulous people trying to scam them.
Others who might benefit include medical and legal professionals whose professions leave them open to litigation. Another example is a child or grandchild who is married to a controlling spouse who could manipulate the heir into ceding control of their inheritance.
Are there any downfalls?
Recipients may resent the perceived “dead-hand control” where the decedent attempts to control their beneficiaries’ lives from beyond the grave. In actuality, it is far more likely that their deceased relative tried to protect their loved one from their worst impulses.
As always, beneficiaries who object strongly to the terms of the spendthrift trust are free to refuse disbursements. Learning more about all of your estate planning options can help you make the best choices for your unique circumstances.