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Discretionary trusts: useful for protecting vulnerable beneficiary’s inheritance

On Behalf of | Nov 3, 2012 | Estate Planning, Trusts |

Our New Jersey readers may have heard of the troubles regarding Whitney Houston’s estate, particularly with respect to her daughter Bobbi Kristina. Houston left a total of $20 million in trust to her now 19-year-old daughter, and this has been a source of contention in the family. Whitney Houston’s mother, Cissy Houston, and her sister-in-law, Marion Houston, have filed a petition as executors of her estate urging a Georgia probate court to put restrictions on Bobbi Kristina’s inheritance payments.

The reason for the petition, they argue, is that Bobbi Kristina is vulnerable to financial predators. They also say that the current distribution schedule would not be what Whitney would want for her daughter, long-term financial security. It is interesting how this situation is faced, at least in the estate planning phase, by many wealthy parents. What is the best way to leave a significant sum of money to a child?

Regardless of the method used to pass on wealth to a young person, it is important to take steps to teach them how to handle money responsibly. To be effective, this has to be done years in advance. In addition, it is important for parent to keep their estate plans updated, so that the provisions in their plan are appropriate to the current situation.

These things said, discretionary trusts are among the best tools used in passing on wealth to children. Discretionary trusts can hold assets for a child and provide details as to how the money is to managed and distributed. Discretionary trusts protect the beneficiary against creditors, divorce, bad investments, and can also restrict spending to only certain types of expenditures.

While discretionary trusts don’ completely protect a child from bad financial decisions, they are an invaluable tool in protecting the financial well-being of a beneficiary.

Source: CNBC, “When $20 Million Is Too Much to Leave the Kids,” Robert Frank, October 19, 2012