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How to Build an Estate Plan When Beneficiaries Aren’t Up to the Task
Not everyone is ready to receive an inheritance. Some are too young, others are elderly and vulnerable, while still others can’t manage large sums of money. That’s what trusts and good estate plans are for.
If you have to think twice about an heir’s suitability for an inheritance, then you should be talking with your estate planning attorney. There are ways to allow heirs to benefit from your generosity, without putting themselves or their inheritance at risk.
A recent Kiplinger article asks: “Is Your Beneficiary Ready to Receive Money?” In fact, not everyone will be mentally or emotionally prepared for the money you wish to leave them. Here are some things to consider:
The Beneficiary’s Age. Children under 18 years old cannot sign legal contracts. Without some planning, the court will take custody of the funds on the child’s behalf. This could occur via custody accounts, protective orders, or conservatorships. If this happens, there’s little control over how the money will be used. The conservatorship will usually end, and the funds be paid to the child, when they become an adult. Giving significant financial resources to a young adult who’s not ready for the responsibility, often ends in disaster. Work with an estate planning attorney to find a solution to avoid this result.
The Beneficiary’s Lifestyle. There are many other circumstances for which you need to consider and plan. These include the following:
- A beneficiary with a substance abuse or gambling problem;
- A beneficiary and her inheritance winds up in an abusive relationship;
- A beneficiary is sued;
- A beneficiary is going through a divorce;
- A beneficiary has a disability; and
- A beneficiary who’s unable to manage assets.
All of these issues can be addressed, with the aid of an estate planning attorney. A testamentary trust can be created to make certain that minors (and adults who may not be ready) don’t get money too soon, while also making sure they have funds available to help with school, health care and life expenses.
Who Will Manage the Trust? Every trust must have a trustee. Find a person who is willing to do the work. You can also engage a professional trust company for larger trusts. The trustee will distribute funds, only in the ways you’ve instructed. Conditions can include getting an education or using the money for a home or for substance abuse rehab.
Estate Plan Review. Review your estate plan after major life events or every few years. Talk to a qualified estate planning attorney to make the process easier and to be certain that your money goes to the right people at the right time.
Parents and grandparents are advised to stay in touch with their potential heirs, whether they are living nearby or far away. If you created a will or trust when heirs were young, their lives, values and priorities have no doubt changed. The wild adolescent may have matured into a kind and generous individual, or the most responsible kid you ever knew might have become ensnared in a dangerous relationship.
Your estate planning attorney will make the process easier, even if there are some changes to be made. Stay in touch and make sure that your gifts go to the right people, at the right time.
Reference: Kiplinger (April 1, 2019) “Is Your Beneficiary Ready to Receive Money?”