Dear Liz: My parents have named me as the executor of their estate. They are elderly, and I will be called upon to perform this duty in the next few years. My sister and her husband are not good money managers. My parents’ wills have been set up to put my sister’s share into a trust administered by me. Is there any way for me to protect this inheritance from a future bankruptcy?
Answer: “Spendthrift trusts” are designed to keep profligate heirs from wasting an inheritance and keep creditors from seizing the trust money. These are fairly common trusts, but the wills have to be properly worded; if you’re not sure, have an experienced estate-planning attorney review them.
While you’re asking your parents for copies of their wills, see if you can talk them into naming someone else to be the trustee. Putting one sibling in charge of another’s money is a recipe for disaster and continuing disharmony. Even if your sister understands she’s hopeless with money, she is almost certain to resent you for standing between her and her inheritance. In many cases, the family would be far better off paying a fee to a bank or a professional fiduciary to be the “bad guy” controlling the cash.