There are many options to protect your children from themselves but the options are the epitome of tough love. Still, they could help your child in the end.

 While planning for your estate addresses many concerns, likely providing your loved ones is at the top of the list. But what if you can fully trust your loved ones to use your gifts wisely and to take care of themselves responsibly? One common alternative is to cut those problem cases out of the will through disinheritance. Nevertheless, as a recent New York Times article points out, those problem cases are all the more reason to make proper estate plans to protect your legacy and to use the inheritance to promote positive change.

Problem cases for inheritances aren’t all “problem” children. You know, the gamblers, the drug addicts, and the habitually irresponsible within our families. Oftentimes, the risks to an inheritance do not necessarily originate with the problem child, rather the problems find the child… and their inheritance. Classic examples of inheritance predators include divorces, lawsuits and bankruptcies.

Indeed, much of the time the concern is just over the possibility of future problems, ones you can’t foresee while planning your estate today, especially when you’re planning with young children in mind. However, the form of the inheritance can help curb present problems and work to avoid future ones by instilling character.

How can you do it? The most powerful tool is the trust for a variety of reasons. At the most basic level, the trust allows limits. Regardless whether money is the cause of the problems, it’s certainly not going to help. A trust can limit the access your loved one has to the money, while still ensuring it is available when they truly need it.

Within the concept of a trust, there are many varieties and options to address nearly every concern. For example, there is the “incentive trust.” This trust still restricts funds, but will make funds available if the beneficiary meets certain stated objectives. A classic example may be remaining drug-free for a certain number of years. On the other hand, it can be a character-building trigger like admission to a certain college or graduation from one. In short; the triggers can be just about anything. Experience has demonstrated, however, that this approach is most effective when you are upfront now about rules of the road regarding the correlation between future conduct and availability of the funds. Take the opportunity to pass along your positive values, rather than just set up a future gotcha program for a loved one to “game” after you are gone.

For those planners who take a uniquely long view, there also is the option of the “dynasty trust.” It has all of the benefits of a trust, but extends those benefits across as many generations as possible, for as long as the funds last (according to current law), and, quite literally, works to form dynastic wealth. That means that using one properly can mean protecting the family assets from problem inheritors for several generations.

Reference: The New York Times (September 2, 2011) “Using an Inheritance to Teach Your Problem Child a Lesson


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