As you get your estate plan together, you may find that you’re concerned about the way one of your beneficiaries uses their money. Maybe this person is one of your adult children, so you’ve tried to teach them healthy spending habits, but they just view money much differently than you. You feel like they are constantly wasting their assets or making frivolous purchases, and you don’t want to leave them a large inheritance that they are quickly going to spend.
This concern is very common, and there are legal solutions. One is known as a spendthrift trust.
2 ways to add limits
When you use a trust, you have a few different options to restrict the beneficiary’s spending. The key is that they don’t own the trust or the assets within it. They can only get distributions from the trustee that you have chosen.
As such, the first option is just to tell the trustee what different types of spending you would allow. Maybe you would be fine with them using the money to start a business, buy a home, get married or get a college education.
The next option is to pick different ages. Maybe the beneficiary is only a reckless spender because they’re still very young. You could set up a trust that doesn’t give them any distributions until they are in their 30s or 40s. By then, they may make more prudent decisions with their money.
Setting up your plan
Using a trust is just one aspect of estate planning that you may want to consider. Be sure you know what legal steps you’ll need to take.