When creating a Will, many people want to ensure their loved ones are financially secure after they are gone. This can be particularly important when a beneficiary may be vulnerable due to age, disability, illness, financial difficulties, or other personal circumstances.

It is important to prepare your estate planning to help protect your vulnerable beneficiaries, whilst also ensuring that your assets are distributed according to your wishes.

Who is a Vulnerable Beneficiary?

A vulnerable beneficiary may include:

• A child or young adult;
• A person with a disability, particularly where the beneficiary receives a disability pension or other assistance under a government scheme;
• Someone experiencing health challenges;
• A beneficiary with poor money management skills;
• A person facing financial hardship; or
• A family member at risk of undue influence from others.

All family’s circumstances are different, which is why preparing an estate plan is important.

Why Planning Matters

Leaving an inheritance directly to a vulnerable beneficiary may not provide the protection or flexibility you intend or that is necessary for the beneficiary.

If your estate plan is not prepared without appropriate estate planning strategy, there may be risks such as:

• Mismanagement of funds
• Financial exploitation
• Loss of government benefits or entitlements
• Family disputes over the inheritance

Preparing a tailored estate plan, catering to your family’s circumstances can provide certainty and protection against these risks.

Options to Protect Vulnerable Beneficiaries

Depending on your circumstances, there may be several ways to protect a beneficiary’s inheritance, including:

1. Testamentary Discretionary Trusts – a testamentary trust is a created via a Will and comes into effect after death. Testamentary trusts allow for increased protection and flexibility in the management of a vulnerable beneficiary’s inheritance. Testamentary trusts are designed to pass to a vulnerable person’s dependents or beneficiaries under their own estate planning.
2. Protective Trusts – protective trusts are trusts created under a Will that is managed by the executor (or another independent person) on the vulnerable beneficiary’s behalf. Protective trusts are active during the vulnerable beneficiary’s lifetime, but will not pass to their estate upon their death.
3. Special Disability Trusts – Special Disability Trusts (SDT) are useful where a beneficiary has a severe disability and meets the requirements under the Centrelink rules. SDTs can be created during lifetime or under a Will.
4. Staggered distributions – your estate planning can be tailored to allow vulnerable beneficiaries to receive their inheritance in stages (i.e. at different ages or milestones) rather than receiving a lump sum payment. 

Implementing one or more of the above strategies will create an estate plan that caters to your vulnerable beneficiary’s circumstances.

Appointing the Right Executor or Trustee

Nominating an executor of your estate is particularly important where there are vulnerable beneficiaries receiving an inheritance.

Where a vulnerable beneficiary is unable to prevented from managing their inheritance, an executor will be responsible to managing their inheritance on their behalf.

It is important to nominate an executor that is trustworthy and capable of managing and protecting a vulnerable beneficiary’s interest.

Review Your Estate Plan Regularly

As, family circumstances, particularly in the case of vulnerable beneficiaries, change regularly, it is important to review your estate plan at least every 3-5 years to ensure that if reflect your wishes and caters for your beneficiaries needs. 

How We Can Help

If you have a vulnerable beneficiary in your family, obtaining legal advice can help ensure your estate plan provides the right level of protection and flexibility.

If you would like advice or assistance in creating an estate plan that caters for vulnerable beneficiaries, lease don’t hesitate to contact us.