Will beneficiaries inherit their loved ones’ values?

When it comes to estate planning, is it the thought that counts? A recent article suggests that individuals may not be as concerned about the amount they leave to their heirs as the financial lessons they have imparted. Said more simply, individuals may worry about how their heirs will spend their inheritance.

Fortunately, there are estate-planning tools to help control the potentially self-destructive spending habits of heirs. A spendthrift trust is a type of irrevocable trust that contains restrictions on withdrawals from the trust principal. The trustee will enforce those limitations, usually memorialized in the trust document.

For example, a spendthrift trust might limit withdrawals to a monthly allowance, while perhaps granting the trustee some discretion to disburse payments in medical or other emergencies. In the case of young children, a spendthrift trust might be dedicated to financing their college education.

After it is created, an irrevocable trust is no longer the property of its creator. That’s because the law generally defines ownership as assets within an individual’s control. In the case of a spendthrift trust, the restrictions generally limit a beneficiary’s access to the trust principal. As a result, the trust’s assets usually are not considered the property of the beneficiary and might be safe from the beneficiary’s creditors.

As an attorney that focuses on estate planning knows, there are a variety of approaches that can promote an individual’s core values and philosophies. If a lump sum disbursement does not further those ideals, perhaps a spendthrift trust might.

Source: Forbes, “Estate Planning Fears That Keeps Us Up At Night,” John E. Girouard, Oct. 29, 2014

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