Question: My son has had a history of making poor financial decisions. I don’t want to leave him out of my Will, but I’m worried about what he will do with any money he inherits. How can I address this issue in my estate planning?

Loraine’s Answer: Many families have members who have struggled with problematic behaviors that affect their ability to properly handle finances. There are often valid reasons that assets should not pass to a particular beneficiary outright, such as addictions or spendthrift habits.

When considering how to benefit a family member who may have difficulty managing an inheritance in an appropriate or desirable manner, you should consider using a trust for that person’s benefit, instead of an outright distribution. A trust is generally the best way to protect a beneficiary, both from the beneficiary’s self and from others. Under Georgia law, if you are providing for a trust to be created with your assets for someone else’s benefit, you can include an option known as a spendthrift provision, which can prevent the beneficiary’s creditors from taking trust assets to satisfy debts that the beneficiary has accumulated. You also do not have to give the beneficiary of a trust control over or direct access to the assets in the trust.

• If the potential beneficiary is still young and may only need to have a longer period of time in which to grow and mature before being given control over the beneficiary’s own inheritance, then a short-term trust may be a good option. For example: A Will that creates a short-term trust for a beneficiary might provide that a beneficiary who is under a certain age at the time of inheritance will have that beneficiary’s inheritance placed in a trust. The Will should also name a third party to serve as the Trustee of that trust. The Trustee could be directed to use the trust assets for the benefit of the beneficiary and given the option to make distributions either directly to the beneficiary or to third parties to cover the beneficiary’s needs. The Trustee should also be required to make appropriate investment decisions, file tax returns, and keep records. Finally, a short-term trust will generally provide that, when the beneficiary reaches certain ages, some or all of the remaining trust assets must be turned over to the beneficiary.
• For a beneficiary who is likely to have life-long problems and need longer-lasting protection, or for a situation where the person who intends to leave the inheritance simply wants to give the beneficiaries as much protection as possible against encroachments by third parties on the inherited assets, the person who intends to leave an inheritance should consider using a long-term trust. A long-term trust would generally be drafted so that it lasts throughout the beneficiary’s lifetime. The beneficiary can be given control over the trust, if desired, through the inclusion of powers of appointment held by the beneficiary, by allowing the beneficiary to serve as a Trustee or Co-Trustee at some point, or by some combination of the two. A long-term trust will also generally provide for what happens to assets that remain in the trust at the beneficiary’s death: For example, a common provision would be to have any assets remaining in a beneficiary’s trust at that beneficiary’s death pass to the beneficiary’s own children in equal shares, if any.

In either case, a trust you create for a family member can provide its beneficiary with significant asset protection and can provide you with control over who can benefit from your assets, how they can benefit, and for how long. If your son has a fairly long history of poor financial judgment, you may want to consider using long-term trust planning for his share of your assets, so that a third party can serve as Trustee for your son and use the assets to help him without giving him the ability to simply spend them as he sees fit.

If your son or any other potential beneficiary has mental or emotional challenges, including but not limited to addictive or compulsive behavior, you should also strongly consider using a corporate fiduciary or Trustee, instead of an individual friend or other family member. Having a neutral, professional third party serve in this role allows friends and family to remain in those roles, reducing the risk that they will end up in conflict with a problematic beneficiary. It also gives you the benefit of having a Trustee that has extensive experience in dealing with beneficiaries with problems, and that often has resources already in place that they can bring in to assist. If you decide on a corporate fiduciary but still wish to have a family member or friend involved, you can often name them as a trust advisor or even as a Co-Trustee.

Key Estate Planning Takeaway: There are options for providing for a beneficiary who struggles with financial responsibility. An experienced estate planning attorney can guide you through provisions that will take care of your loved one after you are gone while providing you peace of mind that your estate won’t be misused.

This “Q&A with Loraine” blog series features answers from Morgan + DiSalvo Partner Loraine DiSalvo to common questions. A key takeaway from each exchange highlights an important facet of estate planning.