When you were a child, your parents may have given you weekly pocket money. They could have given you a lump sum for the whole year, but they knew if they did that, you might quickly spend it all and soon have nothing to show for it. A similar thing can happen when you leave someone an inheritance. Leaving them as a lump sum runs a considerable risk that the beneficiary will spend it all and soon have nothing left.
Certain people will be at greater risk of this, such as those who are too young to handle such sums of money, or those who have drink or drug addiction problems. People could also lose their inheritance in a divorce or a lawsuit brought against them as a professional.
A trust can help
If you place money in a trust for someone, you can stipulate how the money will be distributed to them. Maybe you set it up so they get an annual payout, rather than ever getting a large one. The bulk of the money can be invested and produce interest over its whole life.
Another option is to set amounts by age. For example, at 18 they’d get $10,0000, at 21 another $10,000 and a larger sum at 25 or 30 when they are likely to be ready to invest in a house.
While such rules can be wise, you might also want to consider that unexpected events can occur that would make the sudden release of a larger share something you would want to do (were you still alive). For example, paying for medical bills if a serious illness or injury occurs to your beneficiary or one of their children.
Seeking legal guidance to examine the pros and cons of each option can help you create an estate plan that best meets the needs of your situation.