You are not happy with the way that one of your potential beneficiaries spends their money. You know that you would like to leave them an inheritance, but you are afraid they’re just going to waste it.
As a result, you’re thinking about removing them from your estate plan. You are going to disinherit them so that they don’t squander the money you have worked so hard for over the course of your life.
While disinheriting them may be necessary, there is another option to keep in mind—you may want to use a trust instead.
Setting up a spendthrift trust
One option is to create a spendthrift trust. You put the assets into the trust in advance and designate a trustee to decide when withdrawals and distributions should be made. You then name the problematic beneficiary as the main beneficiary of the trust.
The benefit here is that the beneficiary can’t withdraw the money on their own. You may give instructions to the trustee for how you’d like the funds to be used. They could authorize payments for emergencies, medical bills, tuition, housing costs and other necessities—while preventing the beneficiary from frivolous spending.
If you believe that their poor spending habits are just because they are young, another option could be to delay payment. The trust could only pay out when they turn 40, for instance, or it could pay them a small annual amount to spread the money out and ensure they can’t spend it all at once.
Essentially, using a trust gives you more control over the funds. Be sure you know what legal steps you can take to set it up.