A guide to estate planning with money passing to people incapable of managing their inheritance
There may be many reasons why one of your children can’t manage their inheritance – it could be due to disabilities, addictions, age, or simply because they are bad at managing money. There are estate planning tools available to mitigate the risk of money being squandered by those you intend to benefit after you are gone, and we have set a few of them out below.
THE TESTAMENTARY TRUST WILL
If you are really concerned about the capacity of your beneficiaries in managing their affairs, a Testamentary Trust Will offers the most flexibility to allow for your gift to be protected and to serve the best interest of your intended recipient. A trust relationship is created when a property is held by one person for the benefit of another. A Testamentary Trust Will allows for the specific discretionary testamentary trusts to be created on your death, which can then operate independently from the intended beneficiary.
The reason it can protect an incapable beneficiary is that a trustee can be appointed who is separate from the beneficiary and can manage the money on behalf of the intended beneficiary. This can ensure that while the person you want to gift benefits from the trust, they are not in control of the money themselves, and therefore cannot squander it unnecessarily. You can also limit that beneficiary from ever becoming a trustee themselves, to further protect the gift.
Another advantage is that a trustee has the power to gift the money if the beneficiary recovers from their illness or addiction. For example, if an addicted gambler or alcoholic reforms their lives, the trustee can be compelled in a will to make a payment to the beneficiary if that were to eventuate.
As you can see, the testamentary discretionary trust is the most flexible option available for a beneficiary who is incapable of managing their affairs. Please contact our friendly team at Eleven Legal to help you draft your testamentary trust will today.
SPECIAL DISABILITY TRUST
Another type of trust which can be created in your will to protect certain types of incapable beneficiaries is a Special Disability Trust. If the person you intend to gift has a disability, this trust allows them to benefit from your gift, without giving up any of their benefits that they may receive from the government through Centrelink. The main benefits of a Special Disability Trust are:
- That the trust is allowed to have up to $669,750.00 (as at 1 July 2018) which is not counted as part of the Centrelink income test. This means that all money up to that amount will not preclude the beneficiary from Centrelink payments.
- This money can then be used to pay:
- dental and medical expenses;
- maintenance expenses for any property; and
- up to $12,000 for the discretionary items such as food, household items, petrol, recreation and leisure activities.
This type of trust is not often utilised. The reasons it is not more often utilised are:
- the person has to have a level of impairment that would qualify them for a Disability or Veteran pension.
- the beneficiary is not able to work more than 7 hours a week.
- a financial statement for the trust needs to be prepared every financial year.
- receipts of the discretionary items need to be included in the financial statements.
Please contact our friendly team to find out whether a Special Disability Trust could be right for you.
There are many ways to protect your assets and to ensure that your wishes are taken care of after you die. It is important you get the best advice during your estate planning. Please contact our friendly team at Eleven Legal so that we can guide you through the process.
