Leaving a significant inheritance to a beneficiary can sometimes feel concerning. You do want to pass them an inheritance, but you may be worried about how that person will spend their money. This can make it hard to determine exactly how much to leave them while drafting an estate plan.
If you are facing these kinds of issues, you may find yourself wondering if there is any way that you can control how they spend the money in the future, even after you have passed away. One tactic to address this is to put that money into a trust. You then name them as the beneficiary of the trust, but it is the trust that owns the funds, not the individual.
How this can help
This can help in many ways, depending on how you set up the trust. For instance, if your concern is that they are going to quickly spend all of the money that they get, you could put it into a spendthrift trust. This spreads out the payouts over an extended period, such as allowing them to withdraw $10,000 per year. You do not necessarily control how they use that money, but you ensure that they cannot spend everything at once because they do not have access to it.
Another option could be to put it into a discretionary trust. This allows you to pick a trustee who can then use their best judgment to decide how the funds should be used. This makes it more likely that they will authorize payouts for things that you would support, such as paying a beneficiary’s college tuition costs or helping them start a small business. If you are worried about the beneficiary’s spending habits, the trustee acts as a middleman who can make wise decisions on their behalf.
Drafting your estate plan
These are just two ways to use trusts among many potential options. Be sure you know what legal steps to take as you set up your estate plan.