The process of estate planning is a two-way street. On the one hand you as the individual doing the planning have to evaluate your assets, decide who is on your inheritance list, and make decisions regarding what everyone will be receiving.
That’s the side of the giver, but you also have to consider each recipient. There will probably be people on your inheritance list who are established and perfectly capable of handling any inheritances that they may receive. Giving someone who fits this description a lump sum inheritance is not going to be a problem if this is how you choose to proceed.
Conversely, you may have someone else in the family who does not handle money well at all. This individual may have approached you over the years for financial assistance, but of course you won’t be there to help forever.
While a poor money manager certainly does need something to fall back on, you cannot count on such an individual to manage his or her inheritance effectively.
The solution can be the creation of a spendthrift trust. With these instruments you name a trustee, perhaps the trust department of a bank or a trust company, to manage the funds. The beneficiary can’t touch the principal or make financial decisions.
Distributions are made in accordance with the terms that you set forth in the trust agreement. Your beneficiary will always have a financial underpinning, and he or she will not be in a position to make decisions that have negative consequences.
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