Making an estate plan can get a bit complex if you’re not sure how to address a specific beneficiary. For instance, maybe you have an adult child who has always struggled with drug addiction, so you’re worried that they will simply spend any inheritance fueling this addiction. Or perhaps they just have frivolous spending habits, and you know they will waste any money you give them relatively quickly.
One way to address this is to disinherit that person, which means leaving them out of your estate plan. If you do this, it’s usually best to leave a note in the plan specifically stating that you are intentionally leaving them nothing. You can explain your reasoning if you choose, but you’re not obligated to do so. Making your intentions clear, however, reduces the likelihood of an estate dispute.
But what if you still want to leave them an inheritance? There is another option.
Putting the inheritance in a trust
Your second option is to set up a trust, such as a discretionary trust, to hold the assets. This way, you can designate how the beneficiary can use the money and when they can get distributions.
For example, if you want to prevent frivolous spending, you may stipulate that the beneficiary can only use the money for purposes such as buying a home, paying college tuition, starting a business, covering necessary medical costs or similar expenses. It’s important to name a trustee whom you have confidence will follow your wishes.
Placing the money in a trust allows you to leave a loved one an inheritance while still protecting the assets—and protecting them from their own decisions. Be sure you have experienced legal guidance to set everything up properly and ensure that the trust is legally valid.