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What if a beneficiary has questionable spending habits?

On Behalf of | Oct 3, 2024 | PROBATE & ESTATE ADMINISTRATION - Trust Administration

While you make your estate plan, you will probably carefully consider the beneficiaries that you want to name in your will. You’ve spent your life saving up a substantial amount of money, and it’s time to divide it among your family members.

As you do this, though, you may realize that one of your beneficiaries has spending habits that don’t necessarily make you comfortable. Maybe they tend to frivolously waste their money. You’re leaving them an inheritance that could do a lot of good – starting a business, buying a house, getting a college education, etc. – but you are concerned that they are just going to waste it.

Obviously, you could cut that person out of your estate plan and disinherit them. But is there any way to give them an inheritance while still protecting them from their own poor spending habits?

Using a discretionary trust

There are a few different options, one of which is to use a discretionary trust. This is a fund that you set up using your assets, and you name the beneficiary who should receive payouts from the trust.

But it is not the beneficiary who gets to decide when – or why – they can make withdrawals. That is up to the trustee, who can use their discretion and make wise choices regarding how the money should be spent. 

If you want, you can also leave instructions for specific ways that the beneficiary has to use the money. You could say that they have to use it to pay for their college education, for example, so that they can’t spend it on other things. The trustee ensures that this is done.

As you can see, the key is to plan in advance, so make sure you know what legal options you have.