Rather than leaving assets outright, you may be able to leave a child's inheritance in a carefully drafted continuing trust. A chosen trustee can manage the funds and make distributions under rules designed for that child's circumstances. When the child receives or may need means-tested benefits, more specialized trust planning may be necessary.
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Why Might an Outright Inheritance Be Risky?
Direct ownership can create challenges if an adult child struggles with addiction, money management, exploitation, or a disability that makes managing finances difficult. Depending on the situation, receiving assets directly can also affect eligibility for benefits such as Supplemental Security Income (SSI) or Medi-Cal.
What Is a Continuing Trust?
A continuing trust holds the inheritance for the beneficiary rather than distributing everything at once. Its trustee follows written directions about when and how assets may be used, potentially including housing, education, health, and other support. The document can build in flexibility to respond to changing needs.
What Is the Difference Between a Spendthrift Trust and a Special Needs Trust?
A spendthrift provision generally restricts a beneficiary's ability to transfer their trust interest and may limit access by certain creditors. A special needs trust requires particularly careful design and administration when preserving eligibility for means-tested public benefits is a goal. The two concepts overlap, but a general spendthrift trust should not be assumed to protect benefit eligibility.
Who Should Be the Trustee?
Choose someone capable of managing money, following trust instructions, keeping records, and considering the beneficiary's changing circumstances. Sometimes a professional trustee may be appropriate. Proper administration can be as important as careful drafting; see the firm's guide to administering a special needs trust.
Can the Trust Change as Your Child's Circumstances Improve?
Depending on the trust's design, it may allow the trustee to adjust discretionary distributions or use standards tied to age, need, or demonstrated financial responsibility. However, any flexibility must be balanced against creditor concerns and, when applicable, public benefit rules.
Every beneficiary's situation is different. Contact Kavesh, Minor & Otis to explore continuing-trust options for a California estate plan, or attend the firm's free estate planning seminar.
