This is a common situation: Parents want to leave a share of their estate to a child, but the child has an issue that makes them hesitate. It might be drugs, or alcohol, or gambling. Or the person might be bad at managing their finances. Or they have an abusive spouse. Any number of issues might arise.
Fortunately, there are steps you can take to protect their share without cutting them out altogether.
Set up a trust
You don't have to give the money to your beneficiary outright. You can make sure their share is held in trust for them after you're gone. You have a variety of options for the specific terms:
- Periodic income disbursements
- Staged giving (i.e., a portion upon your death, another portion 5 years later, etc.)
- Giving, as needed, in the trustee's discretion (i.e., for the beneficiary's health, education, maintenance, and support)
- Distributions that are conditional upon staying away from drugs or completing a treatment program
You can set up the trust however you want, taking into account what you think would work best for your beneficiary. Keep in mind that the trustee does not have to give cash to the beneficiary. The trustee can pay directly for items or services. (Of course, some items can be sold for cash, so keep this in mind.)
Name the right trustee
Obviously, if the money is held is trust, the beneficiary should not be the trustee. However, it also should not be someone over whom the beneficiary is able to exercise control. If the beneficiary is able to pressure the trustee, the terms of your trust might not be followed. If this is a potential issue, a corporate trustee, or a private fiduciary, might be a good option.
Abusive spouse of beneficiary
Keep in mind that in California, an inheritance is considered the separate property of the inheriting spouse. In other words, if you leave something to someone who is married, their spouse has no legal right to that asset.
However, if you leave the asset to them outright, there is nothing keeping them from transmuting it to community property, or co-mingling funds, which may not line up with your wishes. For this reason, you may still want to consider setting up a restricted trust in this situation. This is a sensitive subject and requires careful considerations.
Each family situation is different, which is why you need to put some thought into how you set up your estate plan. Discussing your circumstances and concerns with an attorney is a good way to map out a solution.
Helix Law Firm can help with estate planning
If you would like to set up an estate plan, we can help. We will sit down with you and discuss your situation, make a recommendation, and draft an estate plan that works for your unique family situation.
If you're interested in learning more, please call us at (619) 567-4447 to schedule a free consultation.