Making provision in your Will for a person who is unable to adequately or responsibly manage their financial affairs requires special consideration. Vulnerable beneficiaries may include those whom:
- Have a severe disability;
- Suffer from a mental incapacity;
- Have an addiction;
- Are bankrupt (or are at risk of becoming bankrupt);
- Are too young (or too old) to manage their finances independently;
- Are spendthrifts or easily influenced by others; or
- Are at risk of a marriage breakdown.
Rather than providing a vulnerable loved one with access to their inheritance and risk losing those assets, it may be better to put their share in your estate in a protective trust for them.
A protective trust gives you the ability to ensure that your vulnerable beneficiary will receive their inheritance, without having to manage money or property themselves. Instead, their inheritance will be transferred to a trust. In your Will you appoint an independent person or entity that you wish to be the Trustee and set out the rules that you want the Trustee to follow. It is the Trustee’s role and responsibility to follow these rules, to properly manage and maintain the assets and to sustainably distribute income to the beneficiary. Therefore, the risk of your vulnerable beneficiary mismanaging their inheritance is greatly reduced.
The income and assets of the trust can be used to purchase a home, or other investments for the beneficiary and pay for approved purposes as specified in your Will, such as the beneficiary’s living, medical or education expenses.
The beneficiaries of the protective trust can also include the vulnerable beneficiary’s family so that the trust can provide for them as well.
As with any estate planning, it is important to seek legal advice from an experienced lawyer so that the terms of the protective trust address your concerns and requirements.
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