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Should you fund a spendthrift trust for your kids?

If you are a parent of an adult child who has proven to be inept at handling money, it can make your estate planning efforts especially challenging.

For instance, suppose your two adult sons have very different personalities. Your oldest son has always been the epitome of responsibility and displayed exemplary decision-making skills. He married soon after graduating from college, has a successful job and two adorable youngsters.

With your younger son, however, the apple couldn't have fallen any farther from the tree. Certainly you love him just as much as his brother, but his antics have exasperated you and worn out your patience more than once over the years.

At 35, instead of being settled into a career, it appears he's still tilting at windmills. Every cent of seed money you've ever put into his ventures has wound up squandered on the failed businesses in which he's been involved. He's still single, and you're worried he's going to waste what's left of his life. Additionally, you're worried that he's drinking too much.

As a parent, you have the right to be concerned how your life's savings is spent — or squandered. You realize, too, that it's not fair to penalize one brother for the fiscal failings of the other, but you also don't want to leave one son out in the cold while setting up the other.

What's a loving parent to do?

A spendthrift trust could be the best option for the child with financial difficulties. With this option, you can name an independent trustee (not the sibling, as this can destroy relationships) with the discretion to determine how much should be disbursed to, or on behalf of, your more irresponsible son. Not only can your son not dissipate the trust's principal, but the instrument can be drafted in a manner that prevents future creditors from pressing claims against the trust's assets.

This is also a prudent option for protecting financially stable beneficiaries who could be at risk of being named defendants in malpractice litigation.

To avoid the possibility of your beneficiaries falling out after your death and the settling of your estate, you may want to discuss your estate plans with them. Explaining your reasoning and allowing them to express their feelings may decrease any resentment they're likely to feel later.

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