Protecting Heirs with Spendthrift Trusts
“What steps can be put into place to ensure an adult child, who makes poor decisions, will be secure after the death of the parent? The main asset is life insurance.”
This is not an unusual question for most estate planning lawyers—and in most cases, the children aren’t bad. They just lack self-control or have a history of making poor decisions. Fortunately, there are solutions, as described in a recent article titled “Estate Planning: What to do to protect trusts from a spendthrift” from NWI.com.
The Role of Estate Planning in Supporting Responsible Inheritance
What needs to happen? Plan to provide for the child’s well-being but keep the actual assets out of their control. The best answer is the use of a trust. By leaving money to an heir in a trust, a responsible party can be in charge of the money. That person is known as the “trustee.”
People sometimes get nervous when they hear the word trust, because they think that a trust is only for wealthy people or that creating a trust must be very expensive. Not necessarily. In many states, a trust can be created to benefit an heir in the last will and testament. The will may be a little longer, but a trust can be created without the expense of an additional document. Your estate planning attorney will know how to create a trust, in accordance with the laws of your state.
Creating a Testamentary Trust in a Will
Customizing Trust Terms for Beneficiaries
Incentive Trusts for Encouraging Positive Behavior
They could also be distributed only when certain benchmarks are reached, such after a full year of employment has occurred. This is known as an incentive trust.
The opposite can be true: distributions can be withheld, if the heir is engaged in behavior you want to discourage, like gambling or using drugs.
Integrating Life Insurance Proceeds with Trusts
Coordinating with Insurance Companies for Compliance
Navigating State Laws and Probate Requirements
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