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Many heirs fail to protect assets, end up losing inheritance

Houston estate plans should take into account who the intended beneficiaries of a person’s wealth are. For example, potential heirs who are disabled to the extent that they lack the capacity to manage their own financial affairs can benefit from a special needs trust. That arrangement can help protect assets for their future use.

In addition, testators may be concerned about the financial maturity of those who stand to inherit from their estate. In those cases, a trust that limits an heir’s ability to access trust funds all at once can also be a helpful estate planning tool. And according to a new university study, some detailed planning may be required to prevent heirs from squandering their inheritance.

Conducted at Ohio State University, the study found that about one-half of beneficiaries ended up losing assets passed down to them. The reasons varied: Some spent too much, while others ended up donating the money to certain causes and charities. Even if the charities were worthwhile and deserving of a donation, this act may not have aligned with the testator’s intent. Instead, the testator may have wanted to keep the assets in the family for the benefit of future generations.

Under the discretion of a trustee, assets can be closely monitored and preserved. In addition, the researcher behind the study suggested another asset protection method, although it is currently unavailable because of present law. If the law were changed to permit it, he recommended that people place inheritances directly into IRA accounts. Heirs would be less likely to take money out of the IRA because of the stern financial penalties against removing funds early. In that way, wealth would be maintained, not spent.

Source: FOX Business, “Inheritance: Should You Invest or Spend?” Mitch Strohm, June 4, 2012.