People who are doing their estate planning often express concerns about their beneficiaries. They may want to leave financial assets to a family member or someone important to them, but they worry about that person’s spending habits and fear they may waste the inheritance.
If you’re in this position, you may consider disinheriting that beneficiary. While this is an option, it can lead to disputes or hard feelings within the family. Is there a way to address this without completely cutting them out of your estate plan?
Using a trust
One effective option is to use a trust. For example, you can give the trustee discretion to approve or deny withdrawals. The beneficiary can still access the money, but only with the trustee’s approval. By choosing a trustee who will make wise decisions, you can guide the beneficiary’s spending habits. For instance, the trustee may approve a payout for college tuition or a home purchase but deny requests for frivolous vacations or luxury items.
Alternatively, you don’t always have to defer entirely to the trustee’s discretion. You can set up the trust to give the beneficiary access at a later age. For example, if the beneficiary is a 19-year-old college student, you might be concerned about their decision-making abilities. By holding the money in a trust until they are 35 years old, you hope they’ll use it more wisely at a later stage in life—perhaps starting a business, purchasing a family home or investing in their future.
Trusts provide significant control over how your estate is managed and distributed. Be sure to explore all the estate planning tools and options available to you.