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Keeping beneficiaries from wasting their inheritance

On Behalf of | Jun 13, 2024 | Estate Planning, Probate & Guardianships

If you are worried about how your descendants will use their inheritance, you are not alone. Many people are concerned about their beneficiaries’ spending habits. You may have a beneficiary who just constantly makes unnecessary purchases or who tends to rack up a lot of credit card debt, so you worry about leaving them a substantial inheritance.

You certainly do have the option to cut them out of your estate plan. If they expect to inherit – such as if they are your biological child – then you may want to use a disinheritance clause to do so. But you’re not obligated to give anyone an inheritance, and you certainly can choose to avoid them if you’d like.

That said, are there any ways to prevent a beneficiary from wasting the inheritance while still leaving them those financial assets?

Put the assets in a trust

To do this, you should typically put those assets into a trust. You then name your own descendant as the beneficiary of the trust, and you pick a trustee to distribute the funds. Because you are choosing a trustee, you know that the money won’t be wasted. The beneficiary isn’t the one who decides how to spend it. 

If you’d like, you can simply allow the trustee to make spending decisions on behalf of the beneficiary – such as a discretionary trust. But you can also use the trust to specify certain things you would like to accomplish, such as helping the beneficiary start a business, buy a home or pay for their college education.

Drafting an estate plan

There are many different estate planning tools at your disposal, and you can accomplish most goals with the correct plan. The key is just to understand all of the legal options you have and what steps you’ll need to take to reach those goals.