And although the clients want to leave something to that child, there's a concern that their hard-earned money will be "wasted" once the child receives his inheritance.
The best approach in such a situation is usually to have that child's inheritance go into what is commonly called a "spendthrift" trust. I prefer the term "protection" trust just because it sounds kinder.
In any case, using such a trust as a component of your estate planning is generally a wise approach when a child (or any beneficiary who is not a child) is in one or more of the following cicumstances:
- The child is irresponsible with money management, does not have a history of saving and investing, and there is a concern that your hard-earned estate will be wasted;
- The child has a history of creditor problems, actually hascurrent creditor problems, or you are reasonably certain that creditor issues will arise in the future based on the child's behavior;
- The child is in an unstable marriage where a divorce is more than likely...the trust can prevent the estate from becoming part of a divorce settlement process;
- The child is addicted to drugs, alcohol or gambling;
- The child has a history of being influenced by an overbearing spouse in regards to money management;
- The child belongs to a religious group or some similar organization and you do not want some/all of your estate to ultimately be donated to such a group;
- The child would be prone to "financial predators" and scam artists.
Please note that this is not always the best approach, but those of you with scary kids should discuss this issue with your estate planning attorney. Otherwise, your child's inheritance may tragically disappear...and perhaps make your child's problem worse.