Death is inevitable, and you want to ensure that your heirs and beneficiaries are taken care of once you are gone. But not all people are equipped with the financial savvy to handle access to large sums of money.
In some cases, heirs blow through their inheritances quickly, with nothing of substance to show for it. But it doesn’t have to be that way.
Fund a spendthrift trust
A common tool to protect the principal of a beneficiary’s trust is to include a spendthrift provision that denies the beneficiary access to the principal of their trust. Instead, it is managed by a trustee whom the funder appoints.
The funder also designates a schedule for disbursements to be made to the beneficiaries. Disbursements can be linked to milestone birthdays or events (graduation, marriage, childbirth, etc.), occur annually, semiannually or even monthly — whatever arrangements you feel best serve your heirs.
Be mindful when selecting trustees
All people engaging in estate planning want someone whom they trust implicitly as a trustee. That naturally leads them to consider their family members.
But it is often not a wise idea to select one relative to serve as trustee over the funds of their other relative. The transactional nature of trustee/beneficiary roles can damage relationships between parents and children or between siblings. That’s certainly not what you ever intended.
Financial and legal professionals who are unrelated third parties may be the better choice when it is time to appoint a trustee over the spendthrift trust of your beneficiary. Taking the time now to set your intentions in writing can offer you the peace of mind that you deserve.