How Do You Handle Problem Children In Your Estate Plan?

By Myka Landry

Although most parents wish all of their children were perfect, that is not always the case. And that can create some concerns when planning for a child’s inheritance.

For example, some children may have drug or alcohol addiction problems. Some may have creditor, marital or gambling issues. Others may have disabilities that need to be tended to.

So how can a parent prepare for and protect their children? Rather than give them an inheritance outright, it might be best to leave assets in a trust that can be managed on behalf of a child.

If a child is given an inheritance outright, there is nothing to stop the addicted child from spending it all on drugs or alcohol. There is nothing to prevent creditors from taking the inheritance to satisfy a debt. There is nothing to stop a spouse from taking a portion in a divorce.

Parents who have children with these types of issues would probably be better off setting up a trust, especially if they want to help a child get out of trouble and back on their feet.

Although there are many different kinds of trusts and many provisions that can go into a trust, a trust essentially allows someone (a trustee) to hold the money and distribute it to a child according to the parent’s instructions.

Of course, the parent should also weigh how strong their concerns are about their children because trusts bring added complexity and costs. A trustee must be selected. The trust must be administered. And it requires a separate tax return.

I recommend meeting with a qualified estate planning attorney to discuss the pros and cons, and whether the inheritance amount is worthy of the establishment of a trust.

Another option, of course, is to leave the child out of your will. But it is crucial that estate documents clearly state a specific person has intentionally not been included. The intentions must be well documented to avoid a court battle.

Another time a trust is important is when a disabled child receives needs-based government benefits. If this child inherits money outright, they would be disqualified from receiving these benefits. By putting their inheritance into a special trust, the benefits could be enhanced rather than eliminated. Please note, however, that these types of trusts are very specific and have to be set up in the will of the person passing away.

Again, it is best to meet with a qualified estate planning attorney to help you make informed decisions about your children when it comes to your estate plans.

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