Planning For The ‘What-Ifs’

How to protect loved ones from financial exploitation

On Behalf of | Jan 17, 2023 | Trusts

The more money and other resources someone has, the more vulnerable they may be to financial abuse by others. Children, older adults and those with disabling medical conditions are among the most at risk of financial abuse. Financial abuse can also compound already abusive romantic relationships and marriages.

If you have resources that you want to pass to your children or other loved ones when you die, you may be aware of how a sizable inheritance could put them at risk. How can you minimize the possibility of financial abuse harming the beneficiaries of your estate?

Limit direct control over inherited assets

The simplest way to avoid making someone a target for financial abuse is to carefully plan their inheritance so that they won’t have direct control over major assets. If someone’s resources are in a trust, they won’t simply be able to withdraw a large amount to spend on a new romantic partner, for example.

The trustee distributing the resources can serve as a crucial protection against financial abuse, as they can be the one who actually transfers payments to specific recipients instead of handing over cash to a beneficiary. The more careful you are about the structure of your trust and the limitations on distributions from the trust, the harder it will be for someone else to abuse the beneficiaries of your estate plan.

What about abuse by the trustee?

The trustee that you name is likely someone you view as responsible and honest. However, many people can change their behavior when they have unsupervised access to financial resources. The possibility exists for the trustee in your case to fail to fulfill their fiduciary duty.

They might embezzle from the trust or make improper distributions for their personal benefit. One of the ways to prevent such misconduct is to name multiple people as co-trustees, as there will then be other people with the authority to prevent inappropriate transactions. Another method might involve hiring a professional fiduciary rather than naming an individual that you know to service trustee.

The more structured someone’s inheritance is, the easier it will be to protect them from financial abuse. As an added benefit, moving someone’s inheritance into a trust could provide them with crucial resources should they ever choose to leave an abusive relationship while simultaneously minimizing the likelihood that the person abusing them will be able to claim any of those assets in a divorce.

Thinking about how the people you love are vulnerable can help you create more effective estate planning documents, including trusts.