Frequently, estate plans will include an inheritance for a minor beneficiary. If you have minor children, you should spell out exactly what you want as far as who will care for your children and how your children’s financial needs will be met. Wealth Advisor’s recent article entitled “Handle with care: Tips on planning for the fragile beneficiary” explains that if a minor child inherits property outright, the court will usually appoint a guardian to handle the property until the minor reaches 18. Because of this, most parents make use of a trust, which allows assets to be available for a minor’s benefit but held under terms you set. A trustee oversees this.
Aside from minor beneficiaries, estate plans often include other beneficiaries in a special situation. A few examples are as follows:
A beneficiary with a disability. In some cases, a loved one with a disability may be receiving needs-based government benefits. To make certain that an inheritance doesn’t disrupt those benefits, many parents or guardians ask an experienced estate planning or elder law attorney to create a special needs trust (SNT). This is an irrevocable discretionary trust created by the parent in many cases for the benefit of a child with special needs. When set up correctly, the special needs trust won’t be considered an available resource for the purpose of determining eligibility for needs-based government benefits.
Incentive planning. Another aspect of estate planning is to use your assets to influence your loved one’s values and future behavior. A trust with incentive or disincentive provisions may help guide the choices and actions of your family, even after you have died.
Advanced planning for successful beneficiaries. If you plan to leave assets to a beneficiary, such as a physician, who has the potential to incur significant personal liability due to his or her profession, ask your estate planning attorney about the use of a trust to protect that beneficiary’s inheritance. If an inheritance is left to such a person without any protections, it may be attached by a judgment creditor upon distribution. A successful beneficiary may also need tax planning. If the beneficiary’s inheritance is properly left in a trust with the help of an experienced estate planning attorney, it may be removed from the beneficiary’s taxable estate for estate tax purposes.
Although estate planning may be thought of as a way to transfer your assets to your family in a tax-efficient manner, it is also a way in which you can motivate, and protect, your loved ones.
Reference: Wealth Advisor (Dec. 22, 2020) “Handle with care: Tips on planning for the fragile beneficiary”t
