In our practice we see many different examples of how an inheritance can be harmful instead of helpful. The failure to plan or at least consider the consequences an inheritance can have on a beneficiary’s life can lead to unintended consequences. The following article will explore those situations and how drafting a specific set of instructions (called a trust) can be helpful.
Gifts to family members with drug or alcohol abuse issues comes at the top of the list for a harmful inheritance. When these issues arise in a family, they are often private matters. Skeleton in the family closet. As such, family’s fail to plan resulting in a harmful inheritance to someone who has yet to work through their dependency issues.
The best course of action to mitigate against harm to drug dependent beneficiary is to draft a trust that prevents outright payment to such beneficiary. You need to have provisions flexible enough so that the person who handles the funds (called a “trustee”) for the troubled heir can adjust for changing circumstances. Proof of being “clean” can be given as a precondition to payout. Of course, in these instances the selection of the trustee is just as important as the terms of the trust itself.
Another harmful inheritance (or at least a lost opportunity) is giving an inheritance to someone who depends on government support due to special need. In these instances, government benefits may be lost or suspended until the inheritance is spent. To avoid this loss inheritance, a patriarch or matriarch can utilize “supplemental needs trusts” – these are trusts specially drafted to comply with state and federal law so that they supplement government benefits. In this way, a bequest augments and improves the beneficiary’s lifestyle as opposed to simply maintaining the status quo.
Another concern families have with a large inheritance is that it will potentially disincentivize a minor or young adult from doing their best since their needs will be covered by the trust. Avoiding “trust” dependence has as much to do on how you raise the child as it does with the written terms of a trust. Of course, you make your values clear in a trust by including special provisions incentivize a child such as a bonus upon graduation from college or splitting the cost of a car to the extent the child earns half the funds. The most important feature is simply having someone oversee the trust until the child reaches a certain age of maturity. In Illinois that age is 18, but in my Wills and Trust law practice parents often consider that age somewhere between 23 and 35 or older.
This article just touches on some of the multitude of issues that arise with an inheritance. When dealing with any kind of wealth or inheritance, it is important to consider who the recipients are, the assets they are getting, and how those assets will impact their lives.