Protecting Beneficiaries Against Themselves

The next two blogs take a break from our example series to address a side of Estate Planning that can occasionally get lost in the efforts to get the best legal advantages for our clients. It is important to remember that regardless of the legal and financial benefit a client may receive from having a plan, the emotional benefits cannot be forgotten. 

As estate planning attorneys, we spend a considerable amount of time with clients discussing the “legal” topics of estate planning, such as taxation, probate avoidance, and beneficiary selection. We worry about the value and type of assets in the estate as well as ensuring that clients transfer assets properly so that documents work as intended. We work with the clients to determine who they want to receive assets, in what proportions, and the manner in which they are to receive these assets. In short, we worry about how clients’ "tangible assets" will be distributed following their death.

Sometimes, clients are open about the shortcomings or flaws of their beneficiaries and their ability to handle assets they might receive. More often, clients will initially keep their concerns to themselves, reticent about telling family secrets. In order to properly draft an estate plan that meets their needs it is important that we as professionals are able to get clients to open up about such concerns. 

Are the beneficiaries mature enough to handle large sums of money? 

Do they have problems with a rocky marriage, creditor issues, or even a drug or alcohol dependency? 

Is there a reason to exclude a particular beneficiary?
It is our job to help the client consider all of these factors in determining the distribution of their assets. 

Legally, we can assist the client with options for protecting beneficiaries against themselves and their own tendencies. Clients can establish Trusts that allow the trustee to determine how much money a beneficiary needs, or should have, at any one time. Limitations on immediate distributions can protect the beneficiary’s inheritance against creditors or being included in a divorce settlement. It is possible to include provisions to protect the beneficiary against drug or alcohol dependencies by requiring that the beneficiary demonstrate, through regular testing, that they are not engaging in their vices before the trustee makes distributions. The only limitation on what a client can do is their imagination. I once had a client who indicated that one of his son could not receive any inheritance unless the son was “not married to that woman”.  The client had his reasons for doing this, and the provision created the potential to cause significant family issues upon the client’s death, but for a time it was part of the terms of the client’s trust.

Properly drafted Wills and Trusts can ease a client’s mind that they have legally protected their beneficiaries. However, what about a client’s concern that their beneficiaries have not developed values and beliefs similar to the client that makes the client comfortable with passing on tangible valuables. If this is a concern, a client may want to discuss and consider preparing an “Ethical Will” to help point there beneficiaries in an appropriate direction. The next blog will expand upon the purposes of Ethical Wills in greater detail.

Al and Matt