If you have an irresponsible heir, you may be worried that they’re going to waste their inheritance. You’re drafting your estate plan, and you’re thinking carefully about the decades that you have spent saving up these assets. You don’t want to give them to someone who is just going to waste them all immediately.
Certainly, you do have the option to disinherit this person. You don’t have to leave them anything at all. But you may be worried that this is going to cause a dispute or just put the other heirs in an awkward position when the person who was disinherited is unhappy about it. You want to give them an inheritance, so how do you do it? Are there any other tactics?
Using a trust
One common tactic is to use a trust. This is an account that can hold assets on your heir’s behalf. You can fund the trust before you pass away, and it then holds the money that you have put into it.
A tactic for your scenario may be to use a spendthrift trust. This spreads the money out by determining when distribution should be made. For example, you may decide that you want to leave the person a set amount of money every month. Rather than giving them $200,000 all at once – which they may waste quickly – you give them $6,000 a month until the money runs out.
But you could also specify certain ages at which distributions will be made. Maybe your heir is 18 right now, and you want them to get 10% of the total. They will get another 40% when they turn 25. But they won’t get the final 50% until they turn 35. You hope that spreading it out makes it harder for them to waste the money all at once – and that they’ll become more financially responsible as they get older.
At the end of the day, there are many estate planning tactics for any scenario. Just be sure you understand what will work best in your situation.