In an ideal world, all of our children or other beneficiaries would be fully grown, responsible, and disability-free upon our deaths. However, we don’t live in a perfect world and unforeseen circumstances often exist. Whether your beneficiaries are minors, are receiving assistance from the government based on a disability, or are otherwise not in the best position to manage an inheritance, there are plenty of great solutions available through proper estate planning.
If your beneficiary is a minor (or simply too inexperienced to manage money, even if over age 18), a good estate plan will set this beneficiary’s inheritance aside in a trust. You can appoint the person or institution that will be responsible for managing the assets until your young beneficiary reaches an age at which he or she is more capable of managing assets. In the meantime, you can make the funds available for expenses such as support, health care, and education if you desire to do so. Considering that the average inheritance is spent within 18 months (yikes!), some clients even prefer a staggered distribution approach – for example, perhaps you wish to distribute one-third at age 25, another third at age 30, and the final third at age 35.
Did you know that, if your beneficiary is receiving public assistance such as Supplemental Security Income (SSI) or Medi-Cal, leaving an outright inheritance could disqualify him or her from receiving these valuable governmental benefits? However, we don’t have to disinherit special needs beneficiaries. Rather, a good estate plan will set aside this beneficiary’s inheritance in a special needs trust. You can appoint the person or institution that will be responsible for managing the assets. The funds can be available to your beneficiary for those things that the government will not provide and that will make your beneficiary’s life much better. For example, the funds may be available for travel, for special classes, for housekeeping services, or even for a new TV! In the meantime, your beneficiary will not be disqualified from receiving his or her benefits.
Finally, some of us have loved ones who, for one reason or another, based on life choices, have demonstrated that they are just not good with money. There are many solutions available for this situation as well. For example, the funds for this type of beneficiary can be set aside in a creditor protection, or “spendthrift”, trust. You can appoint the person or institution that will be responsible for managing the assets. Sometimes, this type of trust is a lifetime trust and the appointed trustee can determine what the funds can and cannot be used for. In the meantime, if your beneficiary gets sued or divorced, the trust assets may be unavailable to satisfy these obligations. Whatever amount is left over upon the death of your beneficiary will be distributed to the successor beneficiaries of your choice.
At the minimum, considering the divorce rate is still about 50%, why not give all of your beneficiaries the option of keeping their inheritance protected in the event of a future divorce?
Keep in mind that your documents must contain very specific legal language to accomplish the above goals, so it is essential to have an experienced and qualified estate planning attorney draft the proper provisions to avoid unintended consequences. Each family is very different, and your estate plan should certainly be unique and tailored to your particular circumstances!