You do not want to disinherit your children, but money management skills were not one of the talents that God has given them. The kids went through Grandma’s inheritance in less than a year. You may not want that to happen to their inheritance from you.
Is there a way in which you can leave an inheritance to your children without having them just blow it? Absolutely! One of the best ways to provide for your children and to protect them not only from themselves, but from creditors and other predators such as scam artists or divorcing spouses, is through lifetime trusts.
If your child has no money management skills whatsoever, you may want to appoint a professional trustee. That professional trustee controls the inheritance and would have the discretion to dole out the funds as necessary to provide for your child.
If you have a lazy child who doesn’t like to work, you can put incentive provisions in the trust that say that the child gets nothing unless they work. If they work, they can present their W-2 to the trustee and the trustee has the discretion to match the W-2 wages. If the child doesn’t work, they get nothing. The child can double their income if they work.
You may have a middle age child who just likes to party. You may not want the child to party on your money. In that case, you can set up a trust to provide for basic shelter, food and transportation for the lifetime of the child, at the discretion of a professional trustee. However, none of your money could be used to promote a lifestyle for which you do not want to provide. If your child wants to party, the child has to find a job to earn the money to party.
What if your child has some sort of addiction to alcohol, drugs or gambling? You may not want your money to support those habits. Would you want your child to shoot their inheritance into their arm and not likely survive? In those situations, you can put provisions in your trust that would provide for the child and to assist with rehab to overcome their addictions. If, after a certain period of time your child has not successfully overcome their addiction, then their inheritance could go to the next level of beneficiaries, such as their children.
Your child may not be totally lacking in money management skills, but may need someone to assist them. In those situations, you can make the child a co-trustee with a professional trustee. The child then could learn money management skills from the professional trustee, but would not act alone as trustee. The child could become the controlling trustee after a certain period of time or maybe at the discretion of the professional trustee if the professional trustee deems your child is capable of managing those assets on their own.
You may say the heck with it, I’m dead, I don’t care what the kids do with their inheritance. In those situations, you could just leave it outright to the kids, even if they are incapable of managing those funds. Just let them spend it all.
The thing is that it is your money. You can do with it whatever you please. There is no right or wrong way of leaving assets to your kids. If you want to add protections, you can add protections. If you want to let them blow it, let them blow it. It is all up to you.
By: Matthew M. Wallace, CPA JD
Published edited April 19, 2009 in The Times Herald newspaper, Port Huron, Michigan as: Lifetime trusts protect children