You have a family member with a history of making poor financial decisions. Or perhaps there’s a spouse of that family member whom you have misgivings about that are not yet resolved. As you make your estate plans, the decision weighs heavily on you. You don’t want to disinherit this person. They may need the resources you can eventually offer. On the other hand, it pains you to think of what may happen to them when they are provided unlimited access to funds. Will they end up worse off than before?
Solutions
One possible solution is to provide a spendthrift provision in your estate plan. A spendthrift Trust offers some protection to your heir’s potential bad financial decisions by requiring a Trustee to control the disbursement of Trust assets. You can craft the distribution terms to include payment for certain things, and over a time period. Spendthrift provisions can also offer protection against potential creditors. Since the assets are not directly owned by the heir, they are generally free from divorce judgments, lawsuits, and bankruptcies as well as manipulative family members and friends.
In drafting your spendthrift trust, there are two important considerations. First, the trust terms. You may specifically limit trust funds to pay for only certain things. You may provide only a fixed percentage of the assets to be provided over a time period. You may provide the Trustee (Trust manager) with the authority and discretion to determine when an heir will receive payments, how much those payments will be, for what purpose, and any conditions to demonstrate accountability.
The second consideration goes hand and hand with the first. The more discretion the Trustee is provided, the more likely it may achieve your goals. It also places an additional burden on the Trustee. A Trustee who’s merely responsible to dole out set payments on a set schedule requires exceedingly less administrative burden than having broad discretion to make payments for only a certain number of things, or pursuant to general guidelines. The latter can become a complicated and burdensome obligation.
Trustee Selection
Considering this, you should exercise caution when selecting your Trustee. Choosing an heir’s sibling to administer a complicated set of restrictions, with wide latitude in interpretation, may only set both loved ones up for failure. Conversely, hiring a corporate or professional trustee to send monthly checks on a strict schedule without any room for deviation may unnecessarily attrite Trust assets. Balancing these two considerations can be the key to success.
Takeaway
If you are ready to begin your estate plan, or need to modify an existing plan, and one of your beneficiary’s ability to manage money gives you concerns, Contact CASHMAN LAW today for a free consultation to see how we might help protect your loved ones.
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