Protecting Your Children’s Inheritance From Themselves

Protecting Your Children’s Inheritance From Themselves

by Jacqui Brauman

As parents, we spend a lifetime accumulating wealth so that the next generation can benefit from it. But here’s a tricky situation — what if these benefactors, our children, are not ready or equipped to handle a large inheritance responsibly? How do we protect their inheritance from themselves? Whether they’re too young or prone to poor spending habits, there are ways to ensure that our hard-earned wealth is not squandered but used beneficially.

Young or Immature Benefactors

If your children are under 18 or are not quite matured to make wise financial decisions, consider setting up a Minors’ Trust. This type of trust automatically comes into play for anyone under 18 as they are legally not allowed to inherit directly. It provides for their education and upbringing using the trust funds. However, if you believe your children won’t be mature enough even at 18, you can extend the trust’s age limit to 21, 25, or 30, depending on when you believe they’ll be ready to handle their inheritance.

Poor Spending Habits

Another scenario is when our children are afflicted with poor spending habits, substance abuse, or gambling addiction. Navigating this might be difficult and delicate because these habits might not be permanent. They might recover, and we need to account for such potential positive changes.

The trust can be structured in a way that gives discretion to a chosen individual to control and distribute the trust’s assets when they deem the child has recovered sufficiently. This arrangement provides a safety net while also allowing the possibility for recovery.

Protecting Inheritance During Crisis

Lastly, consider a testamentary discretionary trust for capable adult children who might face a crisis out of their control, like bankruptcy or a separation. This type of trust offers an element of asset protection because the inheritance is not directly in the child’s name. This separation provides a buffer against financial attacks — whether from outstanding professional negligence issues, guarantees, or during a separation.

To summarise, protecting your children’s inheritance from themselves sometimes involves difficult decisions, but it provides a safeguard to ensure that your legacy continues to benefit and serve them in the best way possible. Consider these options and weigh the best course of action for your specific situation.

Interested in finding the best course of action for your unique situation?

Contact our team today to schedule an appointment. We’re here to guide you through this process, offering trusted advice and practical solutions to protect your legacy for the benefit of your children. Call 1300 043 103 or send an email to admin@tbalaw.com.au.