Even when you want to leave an inheritance to a beneficiary, you may be concerned about leaving them the entire inheritance at once. Perhaps the beneficiary is still relatively young, and you are not sure that they are going to make wise decisions with what could be life-changing money.
If so, you can use a trust to spread the inheritance out over time. This can sometimes help by forcing the beneficiary to spend their money more slowly or by ensuring that they receive the inheritance when they are older and may make wiser decisions.
A spendthrift trust
When you set up a spendthrift trust, the beneficiary does not actually own the funds. Instead, the trust owns them, and a trustee is responsible for making distributions.
This means that you can set up a schedule in advance. One way to do this would be by releasing a certain amount of money on an annual basis. Rather than giving someone the bulk of the inheritance on the day of your passing, you could stipulate that they get $10,000 per year until the trust has been depleted.
You could also schedule the distributions around the beneficiary’s age. Maybe they get 10% of their inheritance at 18, when they become a legal adult. They get another 40% when they turn 25, and they do not get the final 50% until they turn 30. You may be worried that a college student would spend the money frivolously, but a 30-year-old may use it to buy a family home or start a business.
This is just one way to structure a trust, and there are many options you can use. Trusts give you a significant amount of control over how an inheritance is passed down. Be sure you know what legal steps to take to get your estate plan in place.
