Passing your estate to an heir with credit problems or a gambling or alcohol addiction might not only lead to that wealth being squandered, but the inheritance could worsen the destructive behaviors.
Of course, you don t want to disinherit your child simply because of his or her personal challenges. There are potential solutions that allow parents to control and incent behaviors long after they are gone, ensuring that a troubled child s inheritance won t be misused. 1
Some Common Approaches
A trust is one idea since it can pass wealth to an heir while maintaining control over how, when, where and why the heir can access funds. 2
When establishing such a trust, you can appoint a trustee, which is typically an independent third party (e.g., trust company) or family member. Appointing a family member, however, may be fraught with problems. For example, who do you think is more able to resist the pleadings of a desperate beneficiary, a close relative or a corporate entity?
The trust can specify the precise circumstances under which money will be paid to the trust s beneficiary, or specify that the trustee will retain complete discretion in the disbursement of funds.
Trusts can also include incentives, such as requiring drug or alcohol testing before the funds are paid out, or that a lump sum payment be made only upon graduation from college.
To ensure that an heir is committed to change, lump-sum amounts can be paid out after prescribed periods of time, e.g., five years of sobriety. To encourage your heir to seek gainful employment, the trust might pay out a dollar for every dollar in wages.
Alternatively, the trust can be written whereby payments are made directly to service providers, like a landlord or utility company.
Trusts can be flexible in their design, but before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2018 FMG Suite.
DISCLAIMER: This website is for informational purposes only and does not constitute a complete description of our investment advisory services or any past performance. This website is neither a solicitation nor an offer to sell securities or investment advisory services except where we are appropriately registered or exempt from such registration. Information throughout this site, whether stock quotes, charts, articles, or any other statement or statements regarding market or other financial information, is obtained from sources which we and our suppliers believe to be reliable. However, we do not warrant or guarantee the timeliness or accuracy of this information. Nothing on this website should be interpreted to state or imply that past results are any indication of future performance. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS OR ANY ‘LINKED’ WEBSITE.Back