You have worked hard and managed to accumulate a tidy sum of money. As you think about setting up your estate plan, you might want to consider how inheriting a substantial amount of money could help or hurt your children. As a popular book series has cautioned for over 20 years, receiving too many advantages can create children who are weak and unable to manage their finances well.
Of course, you want your children to be strong and stand on their own two feet, but receive the benefits of your success without the disadvantages. A Texas estate planning attorney can talk to you about your options and help you explore essential questions, like Do you want your children to live extravagantly?
What is a Spendthrift Trust?
One way to keep your children from running through their inheritance too quickly is to set up a spendthrift trust. This type of trust allows the trustee (whom you select) to make financial distributions for necessary expenses but not for wasteful or luxury items. The spendthrift trust could get used for educational expenses, medical bills, housing, or other living expenses. The trustee could distribute a pre-determined amount, like $2,500 a month, or use trust assets to pay specific bills like tuition or a hospital bill on an as-needed basis.
Reasons to Consider a Spendthrift Trust as a Part of Your Estate Plan
If anyone knows that you have wealth, your children could be natural targets of con artists, gold diggers, and others who would happily grasp as much money as they can from your children. You could think of a spendthrift trust as a way of protecting your children from people who would take advantage of them.
Your kids could deflect attempts by people with less-than-honorable motives by explaining that everything is tied up in a trust and they cannot get any money without the approval of the trustee. The trustee could be a trusted financial advisor like your attorney, accountant, or a bank’s trust department.
Here are a few examples of circumstances in which a spendthrift trust could protect your children from themselves and others:
- Your child struggles with budgeting, investing, or other money management skills.
- Your child has issues with substance misuse, gambling, or unwise life choices.
- Your child has intellectual impairment or another disability.
- You have concerns about friends or relatives who might unduly influence your child.
The spendthrift trust does not have to identify the specific grounds that concern you. Making accusations within the trust document would be hurtful and embarrassing to your child or others. Also, itemizing the reasons for the restrictions in the trust could give your child an argument to challenge those restrictions if they can disprove those allegations.
Alternatives to a Spendthrift Trust or an Outright Distribution
Depending on the amount of money in question, you might have other options to protect your child from quickly spending the money if given as a lump sum. You might explore the possibility of creating a private foundation that has a charitable purpose and employs one or more of your children or grandchildren in activities that further those charitable goals. A Texas estate planning attorney could draft the required documents for whichever option you select to provide for your family. Get in touch with our office today for a free consultation.