Is Your Beneficiary Protected From Themselves?
May 01, 2023
Your beneficiaries are legally adults at age 18, but that doesn’t necessarily mean they are responsible enough to handle an inheritance. If you don't do an estate plan with a Will or Revocable Living Trust that incorporates age limits, the usual default under the law is 18.
This is a story going back more than 10 or 15 years ago, but there was a financial adviser who asked me if there was anything that can be done to correct a bad situation. He had tried to get his clients, a couple with one child to me to help set up a revocable living trust for them. The response from the clients was “We'll get around to it,” they said. “We're still young. No problem. We'll get around to it.”
A car accident end up killing the couple. Their biggest asset was an investment account with with about $600,000 in a stocks and other investments. Their only beneficiary was their daughter, and she was a few months shy of turning 18 when the accident happened. By the time things settled out, she was already 18, she gets the money directly… and goes a little crazy. She drops out of high school, buys a big and expensive house, and marries an unemployed 25 year old man. By the time this is done, she looks at her investments and says, “I've still got $130,000 left in my account. I'm never gonna have to work a day in my life.”
It's bad enough that that money was gone, and the rest probably followed suit within a year or two. The house was probably also gone because she couldn't afford to keep it up. Even more than the money being gone was the negative consequences of her life choices that came along with the inheritance. She dropped out of high school, got married to someone who is 25 and unemployed, and probably no job skills.
That was it. Her life was ruined.
The advisor was asking me if there would have been anything that we could have done early enough after the parents died do to have prevented this from happening. The answer is “no.” This was a failure to plan, and in the worst way, because there were no restrictions in place. So when I discuss beneficiary restrictions with my clients, the better term would be beneficiary protections. That's the way it really should be looked at by my clients, even though the beneficiaries from their point of view would see them as restrictions. But beneficiary protections could have saved this young woman not only from losing a substantial inheritances that could have sent her through college or a training program to set up a great career, but it would have likely also prevented her from getting married at too young an age and buying a house she couldn’t afford to maintain.
For more information on setting up a plan to protect your beneficiaries the right way, check out @theplainenglishattorney YouTube channel at https://youtube.com/nclawyer.
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