You’ve been putting off doing your essential estate planning because of a thorny problem involving one or more of your heirs or beneficiaries.
There is no doubt that you love all your children and grandchildren. But it is also true that some have struggled with more than their share of troubles. This is what gives you pause when it comes to the inheritance you hope to leave them. You have heard about spendthrift trusts but wonder if funding one for your future beneficiary is the wrong approach.
Positive reasons for establishing spendthrift trusts
The number one reason for funding a spendthrift trust is to provide heirs with money to make their lives easier without allowing them to fritter away the principal. You might choose this option if an heir has proven themselves to be incapable of managing their money responsibly or if they have struggled with addiction problems.
By allowing a trustee you appoint to regularly disburse sums from the trust to these beneficiaries, you can provide them with a financial cushion while still protecting the principal of the trust from wanton dissipation.
How spendthrift trusts can be viewed negatively
Some beneficiaries consider spendthrift trusts to be “dead-hand control,” i.e., your attempt from beyond the grave to control their lives through your financial hand-outs. While there may be some truth to that assumption, you are in the best position to know whether unfettered access to the entirety of the trust would help or harm your beneficiaries.
One way to avoid strife among heirs over money is to appoint an unrelated, third-party trustee to oversee the trust’s management and disbursements. It is rarely a good idea to appoint a sibling or parent as trustee over their relative’s funds. Doing this can indeed create problems where none previously existed.
Learning more about your estate planning options can clarify your decision and give you peace of mind.