It’s no secret that some people will waste their inheritance. You may have spent decades saving money that you want to pass on to your grandchildren or your own adult children. But you’re concerned that the money is just going to pay down their extensive debt or that they’re just going to spend it frivolously. If you’re leaving someone enough money to retire on, and you’re concerned that they will waste the entire sum in just a few years, it’s understandable that you would be interested in other solutions.
There are different tactics that you could consider, including disinheriting them. But it is often best simply to store the money in a trust and pass it to the next generation that way.
Why is a trust better?
A trust is better for two main reasons. First of all, it can be designed with a certain goal in mind, so you get to specify how the money will be used. If you want it to pay for someone’s college education, for example, you may state that they can’t spend the balance on anything but tuition, books, school supplies, room and board, and the like. They can’t waste the money because you decide how they’re going to spend it.
The second reason that a trust may be better is that the trustee is in charge of distributing the money. The beneficiaries cannot access the funds on their own, making it harder for them to waste their inheritance. For instance, the trustee may simply remove funds from the trust and pay the college directly for tuition costs, so the beneficiary never has the money in their possession at all.
The key to an effective trust is setting it up properly in advance. Make sure you know what legal steps you can take.