News stories about highly paid professional athletes who squander their earnings to the point of going broke and becoming destitute are uncomfortably common. What many people do not know is that this type of financial tragedy often happens to individuals who inherit sudden wealth as part of an estate plan; however, such cases seldom make headlines.
When estate planning attorneys work with wealthy clients, there comes a time when the financial aptitude and responsibility of heirs, particularly children, should be discussed. Some parents tend to be quite pragmatic about leaving their children considerable sums of money; they may think, “well, my sons will be adults when I pass. Let them figure out what to do.” On the other hand, many parents are genuinely concerned about what could happen if their children blow their inheritance and become prematurely broke.
It is a good idea for parents to sit down with their children and talk about certain expectations related to the assets they will inherit. This would be a good time to let children know about spendthrift provisions and how they will be executed for maximum financial advantage.
A spendthrift trust is a type of asset protection instrument that can be formed as a living or testamentary trust; the objective is to create a legal structure that will prevent a lump sum transfer of assets to children who may not be able to handle their inheritance responsibly. Parents may choose to space out inheritance payments upon achieving certain milestones or meeting certain conditions. For example, a daughter may receive part of her inheritance after graduating from college and another part after getting a job.
Trusts formed in Ohio must follow local statutes and rules. Individuals going through the estate planning process may benefit from legal guidance.