Your estate plan lets you dictate the terms of your legacy, but it may not be enough to prevent an heir from squandering their share of an inheritance. Most estate plans, especially those built around wills and beneficiary designations, simply don’t have the flexibility to protect heirs from their own irresponsibility. You don’t have to choose between your life’s work and your children, even if you’re not sure they have what it takes to handle an inheritance. Read more to learn what you can do to protect a child’s inheritance, or contact Beacon Legacy Law today to schedule a Vision Meeting where we can discuss your goals and concerns. Your Last Will and Testament Can’t Beat an Heir’s Bad Habits Your estate plan is the only way to ensure that your assets—from your bank account to your home—won’t be subject to the blunt legal force of an intestate succession. However, your estate plan only works when designed to accommodate your family’s unique characteristics. Heirs, for instance, don’t always have what it takes to manage assets, property, and money appropriately. You may have to think twice about how to leave an inheritance if your child: Tends to overspend Struggles with substance abuse or drug addiction Has special needs that make it difficult for them to manage assets independently Is too young, inexperienced, or unmotivated Simply writing a will won’t provide long-term protection against an irresponsible heir’s propensity to rack up debt or shop until their finances stop. Instead, letting a spendthrift child receive a lump-sum inheritance through probate or beneficiary designation (e.g., TOD or POD accounts) could make it even easier for them to lose the property and assets you spent so much of your life accumulating. How You Can Use Your Estate Plan to Accommodate Financial Irresponsibility Your estate plan doesn’t have to push you into choosing between a beloved child and the desire to manage money responsibly. Beacon Legacy Law has spent years helping families work through challenges and identify estate planning solutions that make sense for themselves and their heirs. We can help you explore your best options for mitigating risk, like: Giving Targeted Gifts You can leverage your estate plan to make a very real difference in your child’s life even before you pass away. If you think leaving any substantial inheritance poses too much of a risk, you could try: Paying off all or a portion of a child’s debt Setting up a conditional education fund Putting money into an annuity Lifetime gifts, whether in cash or paid to a third party, can reduce your estate’s tax liability and give your child a leg up. In some cases, it could even provide a litmus test for how well your children will handle a larger inheritance later in life. Establishing a Revocable Living Trust A revocable living trust is a conditional arrangement. If you establish a trust, you fund it by transferring assets to the control of the trust and a designated trustee. So long as you are alive, you can serve as the trustee of your own trust and retain access to most of your trust assets. After you pass away, a designated successor trustee will manage the trust on your behalf, managing its assets and making distributions in accordance with your wishes. Trusts offer several strong advantages over plain vanilla estate planning instruments like wills and beneficiary designations. By establishing a trust, you can: Keep your estate out of probate Limit how much money your children will receive all at once Permit a child to have rights of access to a trust asset—like a home—without ceding ownership Revocable living trusts can be used to provide one-time, lump-sum inheritances, or they can provide regular and possibly recurring distributions over much longer lengths of time. Establishing a Spendthrift Trust A spendthrift trust is a special type of trust that includes what is sometimes termed a “spendthrift clause” or a “spendthrift provision.” In essence, this is specific language that designates the trust and its successor trustee as the sole owners of trust-controlled assets. The difference between a conventional trust and a spendthrift trust is that the spendthrift clause typically directs that assets be released on a predetermined schedule. Instead of using your trust to leave a single large inheritance, your successor trustee will manage the trust’s assets and make smaller distributions until the trust expires or its funds have been exhausted. Incorporating No-Contest Clauses into Your Estate Plan A no-contest clause is a provision in a will or a trust that penalizes heirs who try to challenge the terms of their inheritance. Most no-contest clauses stipulate that, if an heir challenges the estate or the trust and fails, they will be disinherited. No-contest clauses often come across as harsh, but they are very effective in dissuading irresponsible heirs from trying to get a larger inheritance than they can manage. Note that these clauses have no legal effect in the State of Florida, but they can be used strategically as a potential deterrent.
