Receiving an inheritance can change a person’s life. Those who lose a loved one and inherit from their estate can use what they inherit to improve their economic circumstances and quality of life.
Inheriting a home can make homeownership accessible to people who cannot save for a down payment due to the high cost of rent. Receiving financial inheritances can help people pay for educational costs or set aside resources to ensure their stability during their golden years. Most people are genuinely grateful to receive an inheritance and may try to make the most of the resources that they inherit.
Unfortunately, inheritances can potentially cause complications for people. When can an inheritance potentially have negative implications for beneficiaries?
When they rely on certain benefits
A lump-sum inheritance can significantly alter an individual’s finances. In some cases, what they inherit could render them ineligible for state benefits that they need for independence and financial stability. Particularly when a beneficiary has special needs that limit their earning potential and make state benefits important, a direct inheritance could put them at risk of losing key benefits.
When they have personal struggles
People in difficult situations may appreciate an inheritance more than those who are already financially comfortable. However, their circumstances could diminish the benefits that they derive from the inheritance. For example, a person struggling financially due to substance abuse challenges might use what they inherit to acquire drugs or alcohol. Someone in an abusive or unstable marriage may commingle their inheritance with marital assets, leaving their resources vulnerable to division if they divorce.
What solutions are available?
Obviously, disinheriting people because of their personal struggles or need for state benefits isn’t the best option. Testators creating or reviewing their estate plans may want to establish trusts. A trust can provide structured access to assets and financial support, which can be beneficial for those struggling with addiction or other personal challenges. The trustee’s management of the assets should protect people from squandering their inherited resources. The separation of the beneficiary from direct control of the assets helps protect their eligibility for benefits and reduces the likelihood of creditors making claims against those resources.
Establishing a trust can be a good strategic move for those concerned that an inheritance might harm their loved ones. Trusts are useful in a broad range of circumstances and can provide a lasting positive impact for beneficiaries.