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Would a discretionary trust be better than disinheriting someone?

On Behalf of | May 23, 2022 | Estate Planning |

Not all of your heirs are equal when it comes to handling their money. Most of them do fairly well with it, but you have one heir who does not. They often struggle with money problems, they tend to buy things that they don’t need, they invest poorly and you generally just feel like any money you leave to them is going to be wasted in a few years. Then it’s gone forever, and you feel like you worked too hard for it to let that happen.

The first thing you’ve probably thought of is simply disinheriting this person. You can cut them out of your will, give your assets to other heirs, and then you don’t have to worry about this individual wasting your money. They may not like it, of course, but you don’t have to give them anything. No one is entitled to any of your assets if you don’t want to leave them to them.

But is there a better option?

One other option that you may want to consider is setting up a discretionary trust. This is the type of trust that allows you to pick a trustee who oversees the money that you use to fund the trust. People do this for all sorts of reasons, such as creating an educational trust to pay for college tuition.

With this type of trust, however, you just tell the trustee to use their own discretion and make the best choices that they can. They don’t have to use the money for college or buying a family home or starting a business. They can decide how it should be used.

By doing this, you can still leave that money to your heir. They can still benefit from it in many ways, perhaps by buying a house or getting an education. But you also protect them from themselves. They can’t waste the money because the trustee has to allow them to use it. If they propose a use that the trustee thinks you wouldn’t approve of or that they simply don’t think is a good idea, then the trustee can deny this use. The beneficiary has no way to get the money out otherwise.

It’s incredibly important to find the right trustee in this scenario, but it may be easier to find someone else that you believe can use your money correctly, rather than your heir. If you’re interested in setting this up or in any of your other estate planning options, carefully consider how you can create the right estate plan for your family.