Leaving Money to Problem Children

Many parents want to help their problem children without giving the children an inheritance that could potentially make their problems (i.e. addictions, financial problems, etc.) worse. Three options parents have when it comes to leaving money to problem children are below:

1. Parents can restrict access to the money by creating a simple annuity. The annuity can restrict how the assets will pass to heirs if the parent titles the assets precisely through a beneficiary designation form.
2. Another strategy is to create an incentive trust, essentially giving the child payments when he or she meets certain, documented goals. Triggers can be anything from gaining admittance into college, entering a rehab facility, or matching the child’s income.
3. Parents can also create dynasty trusts to ensure that their heirs are taken care of well into the future. The current $5 million tax exemption and 35% tax rate have caused a significant increase in the number of clients seeking to create dynasty trusts.

See Paul Sullivan, Using an Inheritance to Teach Your Problem Child a Lesson, Wealth Matters, Sep. 2, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.