Understandably, many people who have acquired money or property want to stop that from happening in their family. But is this doable, and how can they make it happen?
Let’s pretend that Sara is very wealthy and wants to leave well over $1 million to each of her three grandkids, Daniel, Tegan, and Eddie. However, Sara doesn’t just want to hand over this money. She wants them to pass a rigorous financial literacy test first. But can she make it happen? Is it fair to expect this, and is this the best way to protect her funds?
Sara can require a financial literacy test, but things may get complicated
First things first: Sara is not the only one with these concerns, and she absolutely has the right to require that her grandkids pass a financial literacy test. She also has tools she can use to make this a condition of Daniel, Tegan, and Eddie receiving their inheritance.
“This grandmother is trying to accomplish something that is very common: Generational asset protection,” Trish Yeatts Butcher, Esq, an estate planning attorney and owner of Arch Legacy Firm, told Moneywise. “As part of the ‘great wealth transfer,‘ we’re seeing more and more families interested in ensuring their children do not squander their inheritance.”
Yeatts Butcher acknowledged that while requiring a financial literacy test isn’t something everyone does, “we definitely see this pop up fairly often, especially with beneficiaries who have a history of financial mismanagement or a drug or alcohol dependency.”
If this is something Sara wants, she can make it happen, but it may be complicated.
“You leave the inheritance to a trust, and then bake in your requirements to the trust,” Kelsey Simasko, attorney at Simasko Law, told Moneywise. “From there, it is up to your trustee to administer the ‘test’ and determine if the beneficiary passed it.”
Unfortunately, as Simasko explained, “the test scenario is ripe for fighting. If the trustee says the beneficiary did not pass the test, but the beneficiary believes they passed, the beneficiary will bring the case into court, and the judge will have to determine if the beneficiary should get the money.”
Simasko warned this could become “very expensive, very fast” and that while Sara may have “baked in the financial literacy test to protect the money, now all the money is being spent on legal fees to decide if the beneficiary actually passed the test.”
