Fragile beneficiaries require thoughtful estate planning.
You have recently been thinking about your estate plan.
You know who you love and what you have.
However, you are not sure about who you want to include as the inheritors of your estate.
You feel torn.
While some potential heirs are fully capable of handling an inheritance, others raise concerns.
According to a recent Wealth Advisor article titled “Handle with care: Tips on planning for the fragile beneficiary,” having concerns does not disqualify these individuals from receiving an inheritance.
Heirs who require a little extra care are common in estate planning.
Such individuals can be described as “fragile” beneficiaries.
Fragile beneficiaries come in a variety of forms.
With an experienced estate planning attorney, you can create a plan to meet the needs of each.
If your children are not yet age 18, they cannot inherit property outright.
You have several options in addressing this reality.
A court could appoint a conservator to manage the property on behalf of the children until they reach age 18.
Another option is to create a trust.
This allows the funds to be available for the benefit of the child under the terms you established within the trust.
You appoint a trustee to oversee the trust and act according to its terms.
Beneficiaries with special needs.
Individuals with disabilities fall under the category of fragile beneficiaries because an inheritance could impact means-tested government benefits.
It would be counterproductive to leave an inheritance and at the same time disqualify them from financial assistance from the government.
A supplemental needs trust can address this issue.
If you leave an inheritance to the supplemental needs trust to be used for the benefit of the heir with special needs, then the trust will not be considered an available resource when used to determine eligibility for benefits.
Beneficiaries who require incentives.
Some heirs need a little motivation.
Perhaps your family values are taking a little longer to register?
If yes, then consider providing “carrots and sticks” to encourage certain behaviors and discourage others.
These so-called “incentive trust” provisions can provide just what is needed to provide guidance to floundering loved ones.
This can be especially helpful in the case of those who use drugs or who have failed out of school or keep losing jobs.
In my experience over the decades, my clients have some children who grow up and other children who just keep on having more birthdays.
Beneficiary with potential liability.
Some beneficiaries have a higher risk of losing their inheritance.
This could be through risky business decisions, problematic marriages, or poor financial management.
Even if an heir is responsible, the nature of his or her work could incur significant personal liability.
In these instances, you may want to ask your experienced estate planning attorney about an lifetime discretionary trust to administer his or her inheritance.
If you fail to build in protections around an inheritance for this heir, these assets could be collected by predators and creditors!
Although fragile beneficiaries certainly may benefit from the inclusion of trusts in your estate plan, other beneficiaries may also benefit.
Either way, a little bit of extra planning can go a long ways.
Reference: Wealth Advisor (Dec. 22, 2020) “Handle with care: Tips on planning for the fragile beneficiary”