When you are planning your estate, you may have concerns if you will be leaving an inheritance to someone that is not good with money. If you name them in a simple will and provide a lump sum inheritance, they could burn through it too quickly and have nowhere to turn later on.
These situations are very common, and there is a widely embraced solution in the form of a revocable living trust with a spendthrift provision.
You Control the Distributions
If you establish a revocable living trust, you retain complete control of the assets while you are living. You can dissolve the trust at any time if you choose to do so, and you would act as the trustee while you are alive and well.
Along the way, you can add additional property to the trust, remove property, and change the terms, so you have total flexibility.
When you establish the trust declaration, you name a successor trustee to act as the administrator after you pass away, and the spendthrift heir would be the beneficiary.
The trustee can be someone you know personally, but you have to consider their relationship to the beneficiary that you want to protect.
Another option would be the utilization of a professional fiduciary. Trust companies and the trust departments of banks provide trustee services for a fee, and this can be a wise choice if the trust is well-funded.
After your death, the trust would become irrevocable, and the beneficiary would not have direct access to the principal. The beneficiary’s creditors would find themselves in the same position, so the assets would be protected.
However, once they have been distributed, they would be available to creditors and other litigants. With this in mind, when you draw up the trust agreement, you can instruct the trustee to distribute limited assets over an extended period of time.
For example, you can dictate a certain dollar amount each month, or you could come up with some other incremental arrangement. In addition to the asset protection motivation, the beneficiary would never be able to spend too much at one time.
If you choose to do so, you can allow the trustee to provide larger lump sum distributions when the beneficiary reaches certain age thresholds.
Incentive Trust
There is another type of trust called an incentive trust that is self-explanatory. You can use this type of trust to guide someone toward a certain type of behavior.
For example, let’s say that your spendthrift loved one does not have a very good work record, and this is part of the problem. You can make them the beneficiary of an incentive trust, and you can instruct the trustee to match their on-the-job earnings dollar for dollar.
An incentive trust can also be used to guide someone away from self-defeating behavior like drug addiction or compulsive gambling. The incentives that you include are up to you, as long as you do not require the beneficiary to do something that is illegal.
Attend a Free Webinar!
We conduct webinars on an ongoing basis, and they cover the most important estate planning and elder care topics. There is no charge to attend the sessions, and you don’t have to go anywhere to join us, so this is a great way to invest some spare time.
You can see the dates if you visit our webinar page, and when you identify the session that works for you, follow the instructions to register so we can reserve your spot.
Need Help Now?
If you have already learned enough to know that it is time for you to work with a Hilton Head, SC estate planning attorney to put a plan in place, we are here to help.
As you can see from this post, each situation is different, and there are multiple tools in the estate planning toolkit. Personalized attention is the key to a properly constructed plan, and this is what you will receive when you choose our firm.
You can send us a message to request a consultation appointment, and we can be reached by phone at 843-815-8580.
Hunter is a member of the South Carolina Bar Association, the Beaufort County Bar Association, and has served on charitable and advisory boards in the Bluffton/Hilton Head area.
Hunter graduated from Hilton Head High School. He then earned his Bachelor of Science Degree in Economics from Clemson University, in Clemson, South Carolina.
Hunter graduated Cum Laude from Regent University School of Law in Virginia Beach, Virginia, having earned a Juris Doctor Degree. He also wrote his doctorial thesis on Estate Planning Dynasty Trusts.
Hunter has called Beaufort County home for since 1984, where he lives with his wife and two children.In his spare time he dabbles in automobiles, reading history, hunting and fishing.
- Sandwich Generation Juggles Responsibilities - February 27, 2023
- How Can You Minimize Estate Tax Liability? - February 20, 2023
- Elder Law Attorneys: Who Are They and What Do They Do? - February 15, 2023
