When thinking about how to pass down wealth, you might have concerns that your loved ones will quickly spend away their inheritances. And it happens all the time.
Assets that take decades to accumulate and build can be blown in a matter of months, being wasted on things that you never meant for your assets to support.
Even if you’re convinced that your loved ones will handle their inheritances with care, you should still find ways to cautiously safeguard your assets so that they last as long as you want them to.
But how can you tailor your estate plan for longevity? That’s a good question, and one that we want to delve deeper into here.
Estate planning options to make your estate last
The estate planning process allows you to individualize your approach to asset distribution so that your wishes can come into fruition. So, when it comes to extending the life of your estate and protecting it from being wasted away, you have several options. This includes utilizing the following:
- An incentive trust: This type of trust is used to condition your beneficiary’s behavior. This is because they won’t be able to access the trust’s assets until they’ve satisfied whatever condition you’ve put in place. Therefore, if you’re worried about your loved one’s ability to manage their finances, then you can condition the release of trust assets on the completion of a financial literacy course. You can be creative here, so think through what you want your beneficiary to do before inheriting and then place it as a condition on the trust.
- A spendthrift trust: This trust restricts the release of trust assets so that your loved one can only access them in an incremental fashion. This ensures that the assets will last longer and won’t be quickly squandered away. The trust also shields assets from your beneficiary’s creditors so that they aren’t quickly gobbled up once your beneficiary inherits.
- A discretionary trust: This type of trust is similar to a spendthrift trust in that assets can be released incrementally over time to a named beneficiary. The big difference is that here the trustee who manages the trust has discretion on when to release assets and in what amount. So, if you choose to utilize this type of trust, you need someone you can count on to serve in the trustee capacity.
- A generation-skipping trust: You might be able to enjoy tax benefits and ensure that your assets have a generational impact by utilizing one of these trusts. As its name suggests, this trust’s assets bypass your children and are directly inherited by your grandchildren.
- The right beneficiary designation: If you have legitimate concerns about a beneficiary’s ability to appropriately handle their inheritance, then you might be better off naming an entirely different beneficiary. You can always gift a smaller amount of your wealth to the person you don’t trust, but don’t put the bulk of your estate’s wealth at risk due to a sense of duty or obligation. Be careful in choosing your beneficiaries.
Don’t shy away from creating the estate plan you need
There are a lot of different ways to create an estate plan. You have to find the one that’s right for you and your loved ones. That might seem complicated to do, but you can take the mystery out of the process by educating yourself as much as possible and reaching out for any support that you may need in navigating the estate planning process.
