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When Heirs are Imperfect

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 their 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 the how, when, where, and why the funds can be accessed.2

When establishing such a trust, you can appoint a trustee, who is typically an independent, third party (e.g., trust company) or family member. Appointing a family member, however, may be fraught with problems. Hypothetically speaking, who do you think may be better able to resist the pleadings of a desperate beneficiary? A close relative or a corporate entity?

Furthermore, the trust can specify the precise circumstances under which money will be paid to its beneficiary, or it can specify that the trustee will retain complete discretion in the disbursement of funds.

STRUCTURING IDEAS

Trusts can also include incentives, such as requiring drug or alcohol testing before the funds are paid out, or perhaps, 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.

Trevor Randall, financial advisor in Long Beach

Trevor Randall

President and CEO of Randall Wealth Management Group

As a Certified Financial Planner® (CFP®) and Retirement Income Certified Professional® with over a X years of experience, Trevor Randall specializes in personalized retirement planning. As President and CEO of Randall Wealth Management Group, a family business established over 30 years ago, he prioritize hands-on care and detailed investment research to ensure every portfolio decision is accurate.

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