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I'm worried about leaving my adult son a lump sum inheritance

Many parents struggle with drawing up comprehensive estate plans because they have one or more children who have proven to be ill-equipped to handle their financial affairs.

Maybe they have a history of filing for bankruptcy or have a weakness for betting the mortgage on a trifecta at the track. Sometimes, the problem might not even lie with the adult child, but with their irresponsible spouse.

There are ways to protect your heirs

For some adults, having unfettered access to a considerable sum of money can be their undoing. They may invest it in a series of go-nowhere businesses or waste it leading a dissolute lifestyle. But whatever the heirs' predilections might be, you realize that as a responsible parent, you don't want to contribute to your son's or daughter's downfall.

Talk to your financial adviser about the benefits of a spendthrift trust. These type of trusts can be structured to prevent your heirs from succumbing to their own weaknesses. Trustees control the flow of money to your heirs, and as the trust grantor, you dictate when the disbursements will be made.

Conditions of spendthrift trusts

It is possible to dictate that an adult child can only receive disbursements if they are gainfully employed. However, you would also need to include an exception in the case of disability.

The more constraints and restrictions that you place upon the trust's funds, the more you open the door to a legal challenge. For instance, it would likely not survive a court challenge if you tie disbursements of funds to your adult child not marrying outside of their religion or race.

Who should be the trustee?

Many estate planning professionals advise against appointing one sibling as trustee for another sibling's spendthrift trust. This imbalance of the sibling relationship can create rifts that may never be repaired. Alternatively, if you have multiple heirs and fund a spendthrift trust for one or more of them, consider appointing an independent third-party as trustee.

Should I tell my heirs about the spendthrift trust?

While this is a decision only you can make, many individuals feel that this transparency is the best way to go when you fund a spendthrift trust.

It can provide you an opportunity to explain why you drafted your estate plan this way without having them be surprised or embarrassed after you pass away. But if you feel that disclosing this now could adversely affect your relationship with your heirs in your lifetime, you may decide to keep your intentions private.

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