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Do You Trust Heirs With Your Money?

Posted on: June 16th, 2015
trustAn individual’s estate accumulates over one’s entire life. Financial assets, sentimental property, and personal effects might not be treated with the same care and attention by heirs. Careful planning can address the concerns noted below. Discussing matters with family and an estate planning attorney can help preserve one’s legacy and minimize risks.

Heirs named in a will and beneficiaries of accounts who have reached the age of majority generally have free reign over how they manage inherited assets. If a beneficiary has a tendency to spend extravagantly outside their means, assets transferred through an estate could be treated the same way. Whether a beneficiary has questionable spending habits, gambling issues, or a history of poor financial decisions, assets can still be preserved and available for their benefit through the use of spendthrift provisions in trust. These provisions limit the beneficiary’s use of the assets and only permit distributions that meet criteria set forth by the trust creator.

Excessive spending could lead to collections. Trusts can also help protect from creditor claims. Assets that a beneficiary receives outright are vulnerable to creditor claims. Distributing assets in trust rather than outright and naming the individual as beneficiary of the trust can help to shield assets for the term of the trust. Depending on the type of assets held in trust, this could also help foster long-term growth.

In other cases, the beneficiary might make prudent financial decisions, but remain irresponsible in other areas of their life. A beneficiary’s careless attitudes toward personal items or leaving their house in disrepair could be cause for concern for an individual who might want to bequeath a home or substantial property that requires maintenance. 

Aside from the beneficiary’s actions, matters beyond their control should be addressed. For example, if an individual inherits a large sum of money, gets married, uses the inheritance to purchase a house, then later divorces, the inheritance is now marital property (the house) and could be subject to equitable distribution laws in the respective state. 

Separate from spousal claims, unforeseen lawsuits should be addressed during estate planning reviews. Ask about asset protection tools to prevent a car accident or other lawsuit from tapping the heir’s assets. Additional protections might be available depending on the state where the heir resides and the assets are located. For example, Florida’s Homestead Exemption allows state residents to declare their primary residence as their homestead. This exempts the property from forced sales due to most judgments. 

In addition to asset protection tools, a family might consider testing heirs first. Forbes recently published a piece outlining ways families can test heirs’ financial skills by encouraging them to: start a business, donate, invest, seek certifications, and more. Bearing witness to an heir’s choices can influence how the testator divides their estate or uses the preservation tools above.
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