Is Your Beneficiary Ready to Receive Money?

If you have any reservations about who you have in mind when writing your will, whether you're thinking about a young child or even an older person who could be vulnerable to scams, a trust could make a lot of sense.

Losing a loved one is an emotional experience. It’s not something we like to think about, but there are many things we can do to prepare for our family members’ care. One way to make sure the next generation is cared for is to leave a financial legacy.

Consider, however, that not everyone will be mentally or emotionally prepared for the money you wish to leave them.

Consider Age

Children under 18 years old are not able to sign legal contracts. Minors can open a custodial checking account with a parent, but insurance companies, financial companies and the court will not release large sums to children in their own names. Without some preparation, the court system will become involved and will take custody of the funds on the child’s behalf. This could happen through custody accounts, protective orders or conservatorships. Perhaps worse, there is little control over how the money will be used, and the conservatorship will generally be closed and paid to the child when they become an adult, which is age 18 or 21, depending on the state.

Our prefrontal cortex, which is the part of the brain responsible for rational decision-making, isn’t fully developed until around age 25. Giving substantial financial resources to those who are not cognitively ready for this responsibility often ends with poor decision-making at best and self-harm at worst. For example, consider sudden access to addictive substances or the ability to run a craps table at the local casino (both are scenarios I have witnessed).

Look at Lifestyle

Inheritance and planning considerations don’t stop with the issue of age. Plenty of other circumstances need to be considered and planned for:

  • What happens if a beneficiary has an existing substance abuse or gambling problem?
  • What happens to that beneficiary and their inheritance if they end up in an abusive relationship?
  • What if the beneficiary is being sued or getting divorced?
  • What if the beneficiary has a disability?
  • What about those beneficiaries who just aren’t up to managing their own assets?

Fortunately, all of these issues and more can be addressed with the help of an estate planning attorney. A testamentary trust can be created to ensure minors (and adults who just may not be ready) do not receive money too soon, while also making sure they have funds available to help with school, health care and life expenses.

Make sure to find out who will manage the trust; a trust needs a trustee, and you will have to find someone willing to do the work. Many professional trust companies won’t get involved in the administration of a trust unless the trust contains at least a certain amount of assets. A company may also avoid working with trusts that involve certain complexities, such as requiring a beneficiary to test for substances prior to accessing funds. The right trustee will distribute funds only in the ways you have decided, which could be for anything from education to home purchases to vacations to rehab.

Trusts like these typically have the added benefit of being spendthrift trusts. Because a spendthrift trust is not “owned” by the beneficiary directly, creditors have a difficult time reaching the assets. This can protect the trust from lawsuits, bankruptcies and divorces. It also keeps the funds out of the hands of manipulative family members and friends.

I once worked with an elderly spouse whose wife had passed away years earlier. She knew he was kind and sometimes too generous with those who came into his life. She created a spendthrift trust for his benefit. As professional corporate trustee for a bank, we were able to act as a go-between. In order to access money, he would have to speak with us first. We were able to dissuade him from giving money to any number of scams and phishing attempts, which were more frequent as he grew older.

Review Often

It’s important to review your estate plan after major life events or every few years. If you have more children, get married, divorced, have a falling out with a family member, buy or sell a home or experience a substantial change in your assets, it’s time to update.

Parents and grandparents should also consider what’s going on in the lives of their children and grandchildren. If you created the will or trust when your children were young, their values and priorities have probably changed. Make sure your plan is still effective and will accomplish what you hope to accomplish.

Trusts can be complicated, but they don’t have to feel that way. Contact a qualified estate planning attorney in your state to make the process easier and to ensure your money goes to the right people at the right time.

About the Author

Philip J. Ruce, J.D., LL.M.

Estate Planning Attorney, Stone Arch Law Office

Philip J. Ruce is a Minnesota estate planning attorney at Stone Arch Law Office, PLLC. Philip places a premium on a high level of client service and loyalty. Philip's trust and fiduciary research has been published by universities around the country. Philip is a graduate of the University of Minnesota (B.A.), William Mitchell College of Law (J.D.), and Thomas Jefferson School of Law (LL.M.). Philip is married with two children.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
9 Great Growth ETFs for 2022 and Beyond

9 Great Growth ETFs for 2022 and Beyond

These growth ETFs offer exposure to higher-risk, higher-reward stocks while lessening the risk of a single stock torpedoing your returns.
January 18, 2022
The 10 Best Closed-End Funds (CEFs) for 2022

The 10 Best Closed-End Funds (CEFs) for 2022

These high-yielding CEFs won't just significantly boost your portfolio income. They'll also allow you to buy their underlying stocks and bonds at a di…
January 12, 2022


12 States That Tax Social Security Benefits
social security

12 States That Tax Social Security Benefits

You may have dreamed of a tax-free retirement, but if you live in one of these states, your Social Security benefits may be subject to state taxes.
January 27, 2022
What to Do When a Family Member Needs a Guardian
estate planning

What to Do When a Family Member Needs a Guardian

Seeking a guardianship for a loved one is a decision that shouldn't be taken lightly. Here's how the process works.
January 25, 2022
The “Gray Resignation” with Liz Windisch
Making Your Money Last

The “Gray Resignation” with Liz Windisch

Pandemic pressures (and high stock and real estate values) are leading many to try to move up retirement. Plus, tax-filing season gets under way.
January 25, 2022
Make a Plan for Your Parents' Care

Make a Plan for Your Parents' Care

The ideal time to begin talking with your parents is before they need care.
January 24, 2022