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Discretionary trusts can help family protect beneficiary’s inheritance

Our Alpharetta readers may be aware of the controversy surrounding the estate of Whitney Houston. One of the issues at stake in the case is $20 million left in trust to Houston’s 19-year-old daughter, Bobbi Kristina Brown. Now, the singer’s mother Cissy Houston and sister-in-law Marion Houston, have filed a petition as executors of her estate, calling for a Georgia probate court to restrict the inheritance payments.

According to Cissy Houston, Brown is vulnerable to undue influence and financial predators, and the schedule of distributions is not in line with Whitney’s desire to provide long-term financial security to Brown. This type of situation is one that is faced by many wealthy families in the estate planning process. The issue is how to leave considerable wealth to a child without setting them up for failure.

One of best ways to address this issue is to make use of a discretionary trust. These are trusts that hold assets for a beneficiary and detail the way in which the funds are to be managed and released. These trusts allow the settler of the trust to protect the beneficiary against creditors, divorce and risky investments. They can also permit spending only for certain types of expenditures. Discretionary trusts, of course, cannot completely guarantee protection from poor financial decisions, but can help a good deal.

Whether or not a discretionary trust is used to pass on substantial wealth to a young person, it is important to prepare them to handle the situation responsibly. This has to be done years in advance, and there are various ways to do this.

Keeping one’s estate plan up to date is important for parents to do as well. Failing to update an estate plan can result in plans that do not fit the current situation and the needs of all of those involved.

And, as always, it is important to work with an experienced attorney on these matters to ensure everything is set up properly.

Source: CNBC, “When $20 Million Is Too Much to Leave the Kids,” Robert Frank, October 19, 2012