What do you do if you have financially irresponsible children but you still don't want to disinherit them? A good way out is to go ahead and name the children as your beneficiaries in your estate planning documents but then set up protective measures to prevent them from wasting their inheritance gifts. Here are some of the protective measures that can work:
Set Up A Trust
If you are afraid that your child will waste their inheritance, then you shouldn't leave the money to them directly. Instead, you should set up a trust, which makes a third person (the trustee) in charge of the assets instead of the child. This way it is the trustee, who should be an honest and reliable party, who ensures the money is used reasonably as per your wishes.
By Giving Them Incentives
Using incentives is one of the best ways of ensuring that your child doesn't squander their inheritance. There are actually three ways in which you can do this:
Encouraging Good Behavior
In this case, you design a trust that is unlocked by good behavior. For example, you may structure the trust so that a certain amount of money is released to the child upon college graduation.
Discouraging Bad Behavior
In this case, the bad behavior locks up the money that the child was meant to receive. For example, you may instruct the trustee to stop making payments to the child if they drop out of college.
Encouraging Good Behavior And Discouraging Bad Behavior
The third route is a hybrid of the two methods described above. In many cases, a combination of the above two methods yields better results instead of relying on one method.
By Avoiding Lump-Sum Payments
If you are really afraid that your child will really gobble up the assets in a short time, then the worst thing you can do to them is to give them all the money at once. Instead, you should ensure that the child only receives the money in installments. For example, you can set up the money to be released every five years. In this case, you are protecting the child because even if they waste the first installment, they still have a chance of redeeming themselves with the subsequent installments. Not only that, but wasting the first installments doesn't make your child destitute since they can still use the subsequent ones to sustain themselves.
Hopefully, you will come up with a good method to protect your children from their wasteful ways. Talk to an estate planning lawyer or visit sites such as http://valentineandvalentine.com to find more information and come up with other measures and execute them.