For most people, one of the primary objectives in creating an estate plan is to decide how assets are divided up when they are gone. That can be problematic if one of your beneficiaries is a spendthrift – and the reality is that most families have one. That one person who simply doesn’t seem capable of handling money. If you are currently contemplating the terms of your estate plan, and you don’t know how to handle a spendthrift beneficiary, you are not alone. Because every situation is unique, you should always consult with your North Dakota and Minnesota estate planning attorney when deciding how to handle a spendthrift beneficiary in your estate plan. One common option, however, is to create a trust to protect the beneficiary’s interests.
The Spendthrift Beneficiary
Do you have an adult child, or other beneficiary, who qualifies as a spendthrift? This is someone who never seems to be able to handle money and/or who spends way more money than he/she should. Most families have one. Sometimes the lack of financial acumen has an actual cause, such as an addiction problem or a mental illness. For other spendthrifts, there is no obvious reason why they don’t handle money well; however, it is a universally agreed upon fact that money management is not their strong suit.
How Can a Trust Help with a Spendthrift Beneficiary?
If you are deciding how to handle the distribution of your estate assets, one thing you probably do not want to do is to hand your spendthrift beneficiary a large lump sum of money. Doing so is basically akin to throwing the money in the trash. Despite his/her best intentions, your spendthrift beneficiary may run through the money in record time and have nothing to show for it. Creating a trust is often a much better option.
A trust allows you to do several things to prevent your spendthrift beneficiary from frittering away his/her inheritance. For starters, a trust requires you to appoint a Trustee. The Trustee of a trust has a number of important duties and responsibilities, starting with the duty to protect and manage the assets you transfer into the trust – and to do so with the best interest of the beneficiaries of the trust in mind at all times. In addition, as the Trustor (creator) of the trust, you have the ability to create trust terms that will dictate when disbursements are made to the beneficiaries and the amount of those disbursements. You can also use the trust terms to limit what trust assets can be used for by the beneficiary. You could, for example, include terms that only allow trust assets to be used to pay required living expenses of the beneficiary. If the beneficiary is a spendthrift because of an addiction or mental health issue, you could even use the trust terms to limit the beneficiary’s direct access to assets and insist that the funds held in the trust be used for the beneficiary’s treatment. If you choose, you could create one trust to distribute all assets for all of your beneficiary’s or you could simply create a trust that only benefits your spendthrift beneficiary and give the other beneficiaries lump sum inheritances.
How an Estate Planning Attorney Can Help
The most important thing you can do to protect both your assets and your beneficiary is to consult with your estate planning attorney about the best way to approach the often delicate issue of a spendthrift beneficiary. Once you have decided how to handle the situation, you may choose to sit down and explain your decision to your beneficiary or use a Letter of Instructions to do so.
Please join us for an upcoming FREE seminar for more information. If you have additional question or concerns regarding the best way to handle a spendthrift beneficiary in your estate plan, contact the experienced North Dakota & Minnesota estate planning attorneys at German Law by calling 701-738-0060 to schedule an appointment.