Legal Tip 109: Spendthrift Children and Inheritance

Spendthrift Children and Inheritance


Do you worry about leaving your children large sums of money only for them to spend it all in the first few years (or months)? or even worse, gamble it away?


If so you may want to consider leaving your children a drip fed income stream from a testamentary trust. This can be instructed a number of ways but some possibilities are:

a. Access to the capital on attaining a certain age
Some like to leave their assets to the trustee of a testamentary trust with the income going to the children each year, but restrict access to the capital of the trust until the youngest child is 25 or 40 years of age.

Example
You have several properties and leave these to your children under a testamentary discretionary trust. The trustee can have the power to give the children the rental income, after costs, but not the properties until the required age is met.

b. Income and capital at the discretion of the trustee
Keeping it more flexible you could allow for the income to be distributed and then capital to be distributed at the discretion of the trustee – which could be someone other than your children. This allows for flexibility in case of reasonable reasons that more money may be needed – education, medical etc.

c. Income to children and capital to grandchildren
You might want to skip the capital going to your children altogether and have it go to the grandchildren.

d. Fixed income/maximum income to beneficiaries
You could place limits on the amounts of income that can be passed to beneficiaries.


But note that where the gifts are left via a testamentary trust the beneficiaries can apply to the courts for a Family Provision order as they are not considered to have been made adequate provision if they cannot access the money. But this doesn’t mean they will and doesn’t necessarily mean the courts will order direct access to the funds.