23 Apr How Do I Leave an Inheritance to an Irresponsible Child?
Individual situations and people can change quickly and dramatically. You don’t want to disclude an irresponsible child from their inheritance—you want to protect their financial future so that when they’re ready, they can handle a large amount of money. Let’s go over how to leave an inheritance to an irresponsible child in a way that will be the most beneficial for all.
Funding a living trust and naming a trustee to manage it will take all the pressure off your beneficiaries. You can take all desired assets currently listed in your name, like real estate, cash and bonds, cars, or boats and transfer the titles of those assets to the trust.
The best way to handle leaving an inheritance in any situation is to:
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- Give the task the time and attention it deserves
- Understand all documents before signing them
- Choose the right trustee
- Work with a professional
Let’s go over a few scenarios, so you can see how a trust will help you protect your beneficiary’s financial future.
Scenario One: Leaving an Inheritance to an Irresponsible Child
Leaving a large sum of money to someone who you feel is unstable, or who is too young to be responsible with their inheritance, is a situation to be handled with care. You’ll want to be honest about your concerns and wishes while still protecting what you worked hard to give them.
An easy way to do this is by placing their inheritance in a trust with specific parameters. For example, you can put age restrictions in place, time delayed or staggered distributions, or choose not disclose the entire amount of the inheritance. Knowing the full sum can be too much for some, and could make them want to spend unwisely or even sue for the full amount.
Scenario Two: Splitting an inheritance among children with different responsibility levels.
In this scenario, you should consider giving different amounts to each beneficiary, or else set up separate trusts for each child. That way, each trust can have protections that make sense for each beneficiary.
Although it might feel natural, you should forgo putting the most responsible child in charge of the trusts. This could lead to resentment and misunderstood intentions. Instead, name a trustee who is a third party and doesn’t have any emotional attachment to the inheritance.
Scenario Three: Leaving an inheritance to a child with an irresponsible or litigious spouse.
Divorce is a big destroyer of inheritance funds. Lawsuits in general can strip away your gift from its intended recipient. Creating an irrevocable trust is the best way to protect against divorce, mismanagement, or any creditor that comes after the grantor’s estate.
A protective inheritance trust is another good option, because it’s just like leaving money and assets in a personal vault for your beneficiary. Only that particular person has the key to open and close the vault and access the funds. But if you name your beneficiary as trustee of the account, make sure they’re capable and willing to take on that responsibility.
Get Estate Planning Advice from an Expert
Deciding on the right type of trust for your beneficiaries can get quite complicated, especially when dealing with a financially irresponsible heir. Working with an estate planning professional can help you navigate the process with ease and understanding. They can help you prevent costly mistakes and decide which tools will best protect your children’s inheritance.
The staff here at Phelps LaClair is well-versed in the many types of trusts available. We’ve been working with Arizona families on their estate plans for over 40 years. Knowing exactly the right type of trust (or trusts) that will meet your needs is our strength. To review your estate plan with a professional, give us a call to schedule a complementary consultation today.
photo taken by Mimi | from Pixabay.com on 4.23.24 | used under the creative commons license