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Worried that your heir is going to waste their inheritance?

On Behalf of | Jun 15, 2022 | Estate Planning

If you are worried that your heir is going to waste their inheritance after you leave it to them in your will, you are certainly not alone. This is something that a lot of people think about, with some studies of wealthy individuals saying that nearly seven out of 10 people were concerned about passing too much money on to their heirs.

Why were they concerned? Some of them were worried that their heirs were going to be irresponsible and waste the money. Others felt that it would cause their heirs to be lazy and not have to work anymore because they knew they could just live off of the inheritance. Either way, they had reservations about simply gifting that much money to someone else. If you’re worried about this, what can you do?

You may want to use a trust

One way to address the issue is simply to put the money into a trust instead of giving it to your heir as a gift or in a will. You can use whatever rules you would like within the trust to govern how the money is then distributed. For instance, you may want to make sure that your heir spends the money on their college tuition or on building up their business. You can lay down these stipulations in the trust or simply pick a trustee who understands what you would want and will only authorize such payments.

Setting up an incentive trust

One specific type of trust that may help is known as an incentive trust. You can use the incentives in all sorts of different ways, but the overall goal is simply to ensure that your heir has to meet those incentives to get their money.

For instance, some people opt to put all of the inheritance into a trust and then allow the heir to withdraw money every year, but they can only withdraw as much as they’ve earned. This means that someone who just drops out of the workforce isn’t going to be able to access the trust at all. If you’re worried that your heir isn’t going to work hard after getting the inheritance, this is one way to ensure that they still have to – and even that they have an incentive to work harder so that they can get more out of the trust.

Getting everything set up can be complicated, so be sure you take the time to carefully look into your legal options.