One of the great things about building wealth is that you can use it to support the people and causes that are most important to you. While you can gift money during your lifetime by relying upon the IRS’s gift tax exemptions, this is a somewhat limited option. A thorough estate plan, on the other hand, can give you the flexibility needed to distribute your assets as you see fit, thereby providing the amount of support that you think is right.
Yet, if you’re like a lot of people who engage in estate planning, you might be worried about how your estate’s assets will be used. After all, some people are prone to squandering away and otherwise misusing their inheritance, which could be contrary to what you want for your loved one.
While that can be stressful to think about, especially given how much time you’ve devoted to building your wealth, there are estate planning strategies that you can implement to avoid this type of outcome.
How to protect your assets from mismanagement and misuse
Remember, your estate plan can be custom-tailored to suit your needs. Therefore, you might want to consider using the following options to ensure that you get some longevity out of your estate’s assets:
- An incentive trust: With this type of trust, assets are only released to a named beneficiary once they complete a goal that you’ve laid out for them in the trust’s documentation. This could be something as simple as completing of a financial literacy course or something more significant like completing a substance use treatment program. Whatever concerns you have about your loved one inheriting from you, you may be able to put them to rest by using an incentive trust.
- A spendthrift trust: If you’re concerned that your loved one will quickly spend away their inheritance, then you can use a spendthrift trust to ensure that they won’t gain immediate access to the bulk of the trust’s assets right away. Instead, the trust’s assets will be incrementally released so that your beneficiary is supported while they won’t be able to use up the trust’s resources in quick fashion. This type of trust also protects assets from your beneficiary’s creditors while those assets remain within the trust.
- A discretionary trust: This type of trust is similar to a spendthrift trust, except that the individual whom you name to serve as trustee will be responsible for determining when assets will be released to the beneficiary and in what amount. So, if you go this route, you’ll want to make sure you name someone you trust to act in that capacity and to oversee the discretionary trust.
- Leave non-monetary assets: There are ways to show that you care about someone other than leaving them money. If you’re worried about a loved one going through a monetary inheritance too quickly, then you might want to think about leaving them something that they can’t easily sell or spend. Items of sentimental value and personal property might be helpful to consider here.
What sort of estate plan is right for you?
That’s a question that only you can answer. However, we hope that you take the time needed to fully educate yourself on the estate planning process so that you know which estate planning tools you can use to your advantage.
