Too Much Inheritance, Too Soon

Some parents are understandably concerned about how a large inheritance might affect their children. That concern is heightened the younger the child is. Eighteen years old may be the official “adult” demarcation line. But being a legal adult and having the actual maturity to handle large sums of money are two different things. Considering that many eighteen years olds are just out of high school–or even still in high school–it is clear that many may not be in a position to manage sophisticated financial situations. Unfortunately, without proper planning ahead of time, it may be difficult to prevent young adults from having significant inheritances dropped in their lap before they are ready for it.

Take, for example, the current legal wrangling around the inheritance given to the daughter of Whitney Houston. Houston died suddenly last February. Her mother and sister-in-law/business manager were named executors of the estate. Virtually all of Houston’s assets were left to her daughter, Bobbi Kristina.

However, in the months since Houston’s passing, the executors have become concerned about Bobbi Kristina’s ability to handle the sizable inheritance she is receiving. According to the Hollywood Reporter, late last month the executors filed a petition with the local court seeking to restructure the plan. Presumably, they are seeking to lower the funds available to the young woman who is now 19 years old. The petition argues that Bobbi Kristina “is a highly visible target for those who would exert undue influence over her inheritance and/or seek to benefit from [her] celebrity.”

The court documents go on to note that there was a clause in Houston’s planning documents noting that the intention was to “provide long-term financial security and protection for her child.” The petitioners are therefore arguing that lowering the inheritance payments is needed to fulfill that intention. It will be interesting to see if Bobbi Kristina intends to fight this attempt to alter the current inheritance details–her lawyer is yet to comment on the situation.

The common technique to help manage these situation is inclusion of “spendthrift” clauses in estate planning documents. Some flexibility exists with these clauses, but the general idea is that they structure inheritances, so that a beneficiary does not receive a bulk of assets at one time. These arrangements are not only appropriate for children of celebrities or the super-rich. Instead, these clauses are often worked into the plans for many families, including those who have adult children with significant financial debt, substance abuse issues, or other vulnerabilities.

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