Palm Springs Law Blog

Wednesday, May 1, 2024

I Have a Family Member Who Is Irresponsible With Money; How Would an Estate Plan Help?

Managing finances can be a complicated matter for anyone. When you have a loved one who’s irresponsible with money, it can be even more challenging. Fortunately, estate planning allows you to consider potential spending issues and create a plan that supports your loved ones while also protecting them. 

How Estate Plans Protect Your Assets

An estate plan is an essential form of asset protection. Estate planning encompasses many financial and legal concerns that are relevant both during and after your life. 

However, a key benefit of working with an estate planning lawyer is to ensure that your assets pass to your heirs rather than being liquidated to pay off debt or being eaten away by taxes and probate fees. 

Most estate planning arrangements are designed to protect your heirs from creditors, the government, and other family members who might try challenging your will. When you need your estate plan to also protect a loved one from their own spending habits, your estate planning options might be more limited. 

Reasons to Choose a Spendthrift Trust

A spendthrift trust is an estate planning option that exists specifically to assist families in situations where a beneficiary has a problematic relationship with money. There is an unlimited number of reasons why benefactors worry about how an inheritance will be managed by the loved ones it is left to. 

Overspending, unwise investing, and gambling issues are all common situations that lead a benefactor to consider placing assets in a spendthrift trust. Some of the most common reasons to choose a spendthrift trust as your estate planning arrangement include situations in which a beneficiary: 

  • Owes a large amount of money 

  • Makes excessive purchases

  • Makes unwise investments 

  • Struggles with gambling or substance use disorder

  • Struggles with mental health concerns that impact their financial decisions

  • Is a disabled adult

Regardless of why a loved one struggles to manage money, this type of trust helps ensure that assets are protected and do what you intend them to do — support a loved one or elevate their quality of life. 

When you place your assets in a spendthrift trust, the beneficiary only has limited access to those assets. This prevents them from making unwise financial decisions, like taking out a mortgage for a home they won’t be able to afford in the long term. 

Benefits and Downsides of a Spendthrift Trust

If you’re concerned about a loved one’s ability to wisely manage the assets you’re leaving behind for them, a spendthrift trust is usually the ideal arrangement. Some of the key benefits of a spendthrift trust include: 

  • Assets are protected

  • Your beneficiary can’t access assets in the trust

  • Your beneficiary receives regular, consistent income

  • Assets are protected from creditors

  • Your estate bypasses the probate process

A spendthrift trust does have some downsides. This sort of trust is irrevocable, which means that you can’t remove assets once you place them in it. It’s also impossible for your beneficiary to take full control of the assets if they develop financial responsibility later in life. 

However, in many cases, these downsides are a small tradeoff for knowing that your loved one will receive long-term financial protection. 

Creating a spendthrift trust involves meeting with an estate planning lawyer, creating the trust, and then placing assets into it. You’ll also need to appoint a trustee or work with an asset management company to administer the trust. 

As part of the process of creating a spendthrift trust, you can set terms for how trust assets are disbursed to your benefactor. This typically involves arranging for regular payments of a set amount. 

Speak With a Palm Springs Estate Planning Lawyer Today

Heritage Legal, PC is an estate planning firm in Palm Springs, CA. We work with clients to identify and create the best estate plan for their family’s unique circumstances.

Contact Heritage Legal today to schedule a consultation with an experienced estate planning attorney in Palm Springs. 

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