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Money Talk: How to structure an inheritance for a spendthrift heir

Dear Liz: My financially illiterate, almost 50-year-old son will be living off his inheritance when I die. A good part of his life was spent drifting, so I have no idea if he will receive Social Security or how much. How do I structure his inheritance so that he won't fritter it all away in a short time and then expect his dependable sibling to shoulder his burden?

Answer: A spendthrift trust can keep your son from frittering away his inheritance. These trusts limit the beneficiaries' access to the principal — the amount you put into the trust. This limitation prevents creditors from accessing the principal as well, and he won't be able to borrow against the trust, either.

That's the good news. The bad news is that you have to find someone to be the trustee, and that probably shouldn't be his sibling. Putting one sibling in charge of another's money is a good way to ensure lifelong enmity. Look instead for a professional trustee at a bank or trust company to fill this role.

A spendthrift trust is not a do-it-yourself project. Hire a good estate-planning attorney with experience in this area. You'll need to make a lot of decisions, such as how payments will be determined, how often they'll be made, whether the trustee will have the power to deny payments or to give your son access to the principal if his circumstances change.

A dirty problem

Dear Liz: I bought a house four years ago. The previous owner allowed a gentleman to plant flowers every spring and tend them all summer. I allowed the man to continue after I bought the house. He waters the flowers using my water and I help weed every year. He came to me last week and said he was getting too old to tend to the flowers and wanted to sell me the dirt for $1,000. This was never addressed when I bought the house. Presumably the guy did bring in special dirt, but removing it would damage the property. What should I do?

Answer: The dirt goes with the real estate you bought and has long since become part of it, said real estate expert Ilyce Glink of ThinkGlink.com. Without a written agreement, the man was simply doing work for free.

That said, his labor and the flowers he bought enhanced the curb appeal of your home and arguably its value, said Glink, author of "100 Questions Every First-Time Homebuyer Should Ask." Consider offering him $500 as a compromise or "retirement gift" to thank him for his efforts.

State pensions’ effect on Social Security

Dear Liz: Recently someone wrote to you about plans to receive a state pension and apply for Social Security benefits. You said if the person's job didn't pay into Social Security, the Social Security benefit might be reduced because of the state pension. I have a state pension from a job that did not pay into Social Security and was under the impression that I would not be eligible for Social Security benefits. Am I wrong about that?

Answer: If you previously worked at a job that paid into Social Security, you may be able to receive both your state pension and a Social Security retirement benefit. Your Social Security benefit is typically reduced, but never eliminated, because of pensions received from jobs that didn't pay into the system.

This reduction, known as the windfall elimination provision, does not apply to people who worked for 30 years or more in jobs that paid into Social Security. Its effect is greatest on people who worked less than 20 years in such jobs. Between 20 years and 30 years, the impact declines year by year.

Your state pension also affects — and can eliminate — any spousal or survivor benefits you might have received based on a current or former spouse's Social Security work record. This separate provision is known as the government pension offset. You can learn about both the windfall elimination provision and government pension offset on the Social Security site, www.ssa.gov.

Liz Weston is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the "Contact" form at asklizweston.com. Distributed by No More Red Inc.


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