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I’m leaving my financially irresponsible daughter $500,000. How can I do this without her squandering her good fortune?

‘She should at least have a roof over her head as she ages’ Dear Quentin, What are options for an elderly person to leave money to an adult child in her 50s, let’s call her “Mary,” who has been completely financially irresponsible (including being homeless at times)? Would an annuity purchased upon our death make sense? Or a trust? Who should be the executor of the trust? She should at least have a roof over her head as she ages. We’re talking about an inheritance of $500,000. Many thanks.

Trying to do the Right Thing 

Related: ‘He married a manipulative, unlikeable woman’: My father-in-law, 85, named his wife as sole beneficiary to his $230,000 annuities. Can we undo this?

Dear Trying, It’s a lot of money and should not be given in a lump sum.

A revocable living trust — one you can change during your lifetime once you have put the assets into it and can become irrevocable upon your death — is used by estate planners to hold and protect assets during your lifetime, and ensure those assets avoid probate (saving legal fees); you also maintain the freedom to revise the terms of the trust during your lifetime. 

You can instruct the trustee — a lawyer, accountant, family friend or professional trust company –- to release an income for your daughter, and include certain provisions that could withhold money. Reading between the lines of your letter, it appears that your daughter either has substance-misuse issues and/or mental-health problems that led to her homelessness.

Timothy Barrett, a trust counsel based in Louisville, Ky., gives an example of such a provision. In this guide for Klipinger, he said a trustee could opt to only make direct payments to the vendors for the child’s costs, expenses and obligations. This could include rent, education, utilities and/or transportation costs.

A special needs or spendthrift trust could also withhold most or all distributions if she uses substances, “including medically necessary prescriptions, not approved by the trustee in advance, keep all his rehabilitative therapy appointments, avoid relations with known substance users, and submit to monthly testing for substance use,” Barrett says.

“I encourage, but do not require, that the trustee conduct a personal interview, demand a substance medical screening, or use other means to verify the trustee’s suspicions of harmful substance use. The trustee may require any reasonable medical and therapeutic intervention or rehabilitation before distributions are reinstated,” he adds.

Annuities as an option Annuities are a possibility too, but they have less flexibility than a trust, and should only form part of your overall estate plan for your daughter. Fees can be as much as 10% of the value of your contract. “Typically, the more complex the annuity, the higher the commission,” according to “The commission on a 10-year fixed-index annuity ranges from 6% to 8%.”