Do you have a child who has either physical or mental challenges? Are you worried about how you will pass financial support onto them after you pass away? Passing assets on to heirs can always be tricky, but it can be even more so when the beneficiary has physical or mental conditions that may limit their ability to manage the inheritance. Depending on your child's condition, they may not have the ability to budget properly or they may be too trusting of other people. Without you around to provide care and guidance, they may not use their inheritance in an appropriate fashion. Fortunately, there are tools available that can help you pass on funds to your child and still retain some control. Here are three common methods:
Will with power of attorney. A will is a common tool used for passing on assets to heirs. In most wills, though, you can't control how the heirs can use their inheritances. You can only direct which assets are to go to which loved ones. However, you can also create a power of attorney for your child. The power of attorney would designate someone as having responsibility for your child's financial decisions. You can also create a medical power of attorney granting a person healthcare decision making power.
Obviously, this person should be someone whom both you and your child trust and whom has your child's best interests at heart. However, your attorney or other advisor can keep the document filed away until your passing, at which point it can be executed along with your will.
Special needs trust. A special needs trust is like a will but with a little more power. Essentially, you create a trust for the benefit of your child. You also name a trustee, which is the person responsible for the trust's finances. When you pass away, your assets can move into the trust, at which point they will be managed and distributed according to your wishes and the trustee's best judgement. This can be a good tool because you may be able to state specifically how the funds are managed, used, and distributed.
Annuity. If you're looking for something simple, annuities could be your best option. An annuity is a financial instrument in which an insurance company pays a stream of income in exchange for a lump-sum deposit. You can set up the annuity to make payments directly to your child. That way, instead of getting one big amount of money, they get monthly or annual income for the rest of their life. That could prevent them from spending it all on unnecessary items.
For more information, talk to a financial planner or other advisor. They can consult with you on how best to care for your child after you are gone.