Day 2. Beneficiaries with issues and retirement account

Subject: When your kids aren't ready for money. How trust provisions protect beneficiaries from themselves.

Good morning,

Yesterday you learned why trusts beat wills. In general. For many but not all people. 

Today I'm showing you how trust provisions protect beneficiaries who aren't ready for large inheritances.

This is where trusts become more than just probate-avoidance tools.
They become protective shields.

The Tomato Plant That Needed Support

Every summer I grow tomatoes. The plants get heavy with fruit. Without support, they fall over and break.

So I stake them. I tie them up. I give them structure.

My wife laughs at how much time I spend on this. "They're just tomatoes, Joel."

"But without support," I say, "they'll fall over. The tomatoes will rot on the ground."

She rolled her eyes. "Another estate planning story?"

Maybe. But it's true.

Some beneficiaries need support. Structure. Protection from themselves. That's exactly what trust provisions give them.

The Problem Nobody Talks About

You love your kids. But loving them doesn't make them good with money.

Maybe one struggles with addiction. Maybe another is going through a bad divorce. Maybe the youngest is just 22 and not mature yet.

A will gives them everything at once.

No protection. No structure. No support.

A trust with good provisions gives them what they need, when they need it, with protection built in.

Let me show you the specific provisions that protect different types of problem beneficiaries.

Type 1: The Spendthrift Child
You know this child. Money burns holes in their pockets. New car. Designer clothes. Fancy vacations they can't afford.

They make good money but save nothing. Give them $300,000 and it'll be gone in 18 months.

Spendthrift Trust Provision:

This provision stops creditors from taking trust assets before distribution. The beneficiary can't sell their future inheritance. Can't assign it. Can't pledge it as loan collateral.

More importantly, you control when and how much they get:

• 10% at age 25
• 20% at age 30
• 30% at age 35
• 40% at age 40

Or you can do monthly payments instead of lump sums. They get income for life but can't blow it all at once.

Let me tell you about a client's son. Nice kid. Good heart. Zero impulse control.

We set up his inheritance as $3,000 monthly payments for life. He couldn't touch the main money. Ever.

When his father died, the son was angry. "This isn't fair! It's my money!"

Six months later, he called to thank me. "I'd have spent it all by now. Dad knew me better than I knew myself."

Understanding How Spendthrift Provisions Work

The key is the trustee has complete control. Not the beneficiary.

The trust owns the money. The trustee decides when to distribute it. The beneficiary just receives what the trust gives them.

Creditors can't touch money still in the trust. They can only go after what the beneficiary actually receives.

So if your spendthrift child racks up credit card debt, the creditors can't seize their inheritance. The money stays protected in the trust.

The trustee can even put conditions on distributions:

• Must have a job to receive payments
• Must pass drug tests
• Must participate in financial counseling
• Must show receipts for how money was spent

Sounds harsh. But it protects them from themselves.

Type 2: The Addict
This is the hardest one. Your child struggles with drugs or alcohol. You want to help. But money might kill them.

Sobriety Incentive Provision:

The trust can require:

• Clean drug tests before distributions
• Finishing treatment programs
• Ongoing sobriety checks
• Stopping payments during active addiction

The trustee has full power to decide. If the beneficiary is using, payments stop. Money goes toward treatment instead.

Your child can't override this. Can't talk their way into a lump sum. Can't trick the system.

One client had a daughter with opioid addiction. The trust said:

• $2,000 monthly if sober (checked by monthly tests)
• $0 monthly if using
• Unlimited payment for treatment programs
• Trustee could pay rent and bills directly (never cash to daughter)

The daughter got sober. Stayed sober for three years. Then relapsed.
The trust stopped monthly payments right away. But paid for a 90-day treatment program. Paid her rent so she didn't become homeless.

She got sober again. The payments started again.

The trust saved her life. A lump-sum inheritance would have killed her.

How Addiction Provisions Actually Work

The trustee needs clear guidelines. The trust document should spell out exactly what counts as "sober."

Does the beneficiary need to:

• Pass random drug tests?
• Attend AA meetings?
• See a counselor regularly?
• Stay out of legal trouble?

The trust should say who decides if someone is sober. Usually a doctor or addiction counselor. Not just the trustee's opinion.

The trust should say how often testing happens. Monthly? Quarterly? After any suspicious behavior?

The trust should say what happens if the beneficiary refuses testing. Usually that counts as failing the test.

And critically, the trust should say the money can always pay for treatment. Even if the beneficiary failed every test. Recovery takes priority over punishment.

Type 3: The Divorce Risk

Your daughter married too young. Or your son's spouse is controlling and mean. You see the problems even if they don't.

Divorce Protection Provision:

Keep the inheritance in trust rather than giving it outright. Massachusetts treats trust assets different from owned assets in divorce.

The trustee distributes for your child's benefit. Pays the mortgage. Covers medical bills. Funds education. But never puts assets in your child's name.

If divorce happens, the trust assets stay protected. The ex-spouse can't touch them.

Let me tell you about clients whose son married young. The wife was difficult. Controlling. They saw divorce coming.

When the parents died, the son wanted his $400,000 inheritance. "I want to buy a house with my wife."

The trust said no. But the trustee could pay for a house if the title stayed in the trust.

The son was angry. "You're controlling me from the grave!"

Two years later, the divorce happened. The wife's lawyer demanded half of everything.

The house belonged to the trust. The wife got nothing. The son kept the house.

He called me after. "My parents were smarter than I gave them credit for."

Making Divorce Protection Work

​The key is the beneficiary never actually owns the assets. The trust owns them.

The trustee can pay for anything the beneficiary needs:

• House payments
• Car payments
• Medical bills
• Education costs
• Living expenses

But the assets stay titled to the trust. Never to the beneficiary personally.

In divorce, the ex-spouse's lawyer will argue the beneficiary has access to trust money. That's true. But access isn't ownership.

Massachusetts law says spouses can't claim trust assets unless the beneficiary has complete control. If the trustee has discretion, the assets stay protected.

This is why discretionary trusts matter. "Discretionary" means the trustee decides whether to distribute. The beneficiary can't demand money.

Type 4: The Child with Special Needs

Your adult child has disabilities. Gets government benefits. A direct inheritance could disqualify them from Medicaid or SSI.

Special Needs Trust Provision:

The trust adds to government benefits without replacing them. Pays for things Medicaid doesn't cover:

• Better housing
• Therapy not covered by insurance
• Travel and fun activities
• Technology and equipment
• Quality of life improvements

The beneficiary never owns the assets. Never controls them. So government benefits continue.

I had a client whose adult son had autism. Lived in a group home. Got SSI and Medicaid.

If he inherited $200,000 directly, he'd lose all benefits. He'd have to spend down to poverty to re-qualify.

The special needs trust kept his benefits safe. Used the inheritance to improve his life without risking support.

Special Needs Trusts: The Details

Special needs trusts follow strict federal rules. Mess them up and the beneficiary loses benefits anyway.

The trust can't give the beneficiary cash. Cash counts as income. That disqualifies them from SSI.

The trust can't pay for things Medicaid already covers. That's called "supplanting" benefits. Also disqualifies them.

The trustee needs to understand these rules. One mistake can cost the beneficiary their healthcare and monthly income.

Many families use professional trustees for special needs trusts. Banks and trust companies know the rules. They won't make disqualifying mistakes.

Type 5: The Creditor Target

Your child has lawsuits. Business debts. Creditor problems. Maybe bankruptcy. Maybe a risky job with lots of liability.

Asset Protection Provision:

The trust shields assets from creditors. The beneficiary doesn't own the inheritance. The trust does.

Creditors can't take trust assets. Can't force distributions. Can't touch the main money.

The trustee has full power to decide. If creditors are circling, the trustee simply doesn't distribute. The money stays protected inside the trust.
One client had a son who was a surgeon. High malpractice risk.

The trust held $800,000. If the son faced a lawsuit, those assets were untouchable. His own malpractice insurance covered claims. The inheritance stayed protected.

How Asset Protection Really Works

Creditors can only reach assets the debtor actually owns or controls.

If your beneficiary owns $800,000, creditors can take it. If a trust owns $800,000 and the trustee has full discretion, creditors can't touch it.

This is called a "spendthrift clause." It's a standard part of most trusts. But many people don't understand how powerful it is.

Even if the beneficiary goes bankrupt, the trust assets stay protected. The bankruptcy court can't force the trustee to distribute.

Even if the beneficiary gets sued and loses, the judgment creditor can't seize trust assets.

The key is the beneficiary must not have control. If they can demand money anytime they want, creditors can reach it. If the trustee decides, creditors can't.

Type 6: The Immature Young Adult

Your 22-year-old graduates college. Great kid. Bright future. But not ready for $250,000.

Age-Based Distribution Provision:

• Age 25: 20% (to get started, buy a car, begin career)
• Age 30: 30% (when they're more mature, maybe buying a house)
• Age 35: 50% (when they've shown they can handle money)

Or add achievement provisions:

• Earns college degree: Get 10%
• Gets established in career: Get 20%
• Stays out of legal trouble: Keep getting distributions
• Shows good money skills: Trustee can give more early

I had clients whose daughter was 19 when they died. Smart girl. But 19-year-olds shouldn't get $400,000 at once.

The trust distributed:

• $50,000 at 21 (helped with college)
• $100,000 at 25 (down payment on a house)
• $125,000 at 30 (wedding, kids, settled life)
• $125,000 at 35 (financial planning, investments)

By 35, she was a doctor. Money-smart. Ready for the inheritance.
If she'd gotten it all at 19? She'd have made terrible decisions.

Combining Multiple Protections

Here's the powerful part. You can combine these provisions.

Your 25-year-old might be immature AND going through divorce AND have some creditor issues.

The trust can protect against all of it:

• Age-based distributions (not everything at once)
• Discretionary distributions (trustee decides)
• Spendthrift clause (creditors can't reach it)
• Divorce protection (stays in trust, not their name)

One trust. Multiple layers of protection.

Avoiding Probate

Yes, trusts avoid probate. We covered that yesterday.

But that's only 20% of why trusts matter. The other 80% is protection.

With a will: Your 22-year-old gets $300,000 at once. Your addict child gets cash they'll use to overdose. Your daughter's mean husband gets half in the divorce.

With a trust: You protect them from themselves. From bad spouses. From creditors. From being too young.

The probate-avoidance is nice. But the protection provisions are what really matter.

Trustee Selection Matters Most

These provisions only work if your trustee has the courage to say no.

Don't pick your easy-going brother who can't handle conflict. Don't pick your best friend who wants everyone to like them.

Pick someone who:

• Understands your wishes
• Has the backbone to enforce tough provisions
• Won't give in when beneficiaries beg or threaten
• Puts the beneficiary's future good above their current wants

Sometimes that's a family member. Sometimes it's a professional trustee. Sometimes it's both working together.

A family member understands your kids. Knows their problems. Knows what they need.

A professional trustee knows the legal rules. Handles the investments. Won't get emotional about saying no.

Many trusts use co-trustees. One family member plus one professional. They work together. The family member provides insight. The professional provides expertise.

Tomorrow: The Massachusetts Tax Trap

Today you learned how trust provisions protect problem beneficiaries. Tomorrow I'm showing you the tax surprise that hits middle-class Massachusetts families.

The $2 million limit. How the $19,000 annual gift exclusion works. Why the $15 million federal exemption won't save you.

This is where living trusts become tax-saving machines.

Day 3 arrives tomorrow at 7 AM: Massachusetts Tax Traps

To your family's protection,

Joel Bernstein, JD, LLM (Tax)
Retired 2025 • 32 Years Protecting Massachusetts Families


P.S. The surgeon client with the protected trust? He got sued for $2 million. Lost the case. His inheritance stayed completely protected inside the trust. His creditors got nothing.
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P.P.S. Tomorrow we tackle Massachusetts taxes and how living trusts cut your tax bill.

Joel Bernstein does not provide legal or tax advice. This information is general and educational in nature and should not be considered legal or tax advice. Any tax-related information discussed on this page is based on tax laws, regulations, or other guidance that are complex and subject to change. Additional tax rules not discussed here may be applicable to your situation. We recommend that you consult a qualified tax advisor or legal advisor about your individual situation.