One of the most difficult topics for a New Jersey family to address is how to create an estate plan that allows assets to pass to children without allowing those children to squander their inheritance. For one, tackling this matter requires parents to acknowledge that their child or children are not currently able to make solid financial decisions, and may not possess those skills for some time to come. When considering how to best provide for children without allowing them to squander their inheritance, there are several estate planning options to weigh.
One of the most important aspects of this type of estate plan is to limit the ability of an heir to fully access his or her inheritance unless certain requirements are met. Some parents simply choose to set an age at which their children will have access to the wealth, and set that age well into adulthood. This, however, does not ensure that the child will have reached the appropriate level of maturity to handle a windfall of cash.
A better choice may be to create a trust in which the inheritance will be held. The trust can be structured in such a way that assets are doled out in modest monthly increments, which will prevent excessive spending or total reliance on those funds to make ends meet. It is also possible to stipulate that funds can only be put to certain uses, such as to pay for education costs, a wedding, or to start a business venture.
Limiting an heir’s access to his or her inheritance is never an easy topic to broach, but for those families in New Jersey who need to put such protections in place, it is important to understand the available options. By working closely with one’s estate planning attorney, a solution can be reached that allows one to pass on wealth to those they love, while ensuring that those assets are not squandered. In many ways, this is the most thoughtful approach that a parent can take toward a child who has not yet reached financial maturity.
Source: Consumer Reports, “6 costly estate-planning minefields, and how to avoid them“, April 14, 2015