Ask Paul: How can we stop our daughter squandering her inheritance?

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Paul, I read your response to the reader whose son wasted $150,000 sponsoring racecar drivers.

We also have a son and a daughter. We're both in our 70s and have some rental properties. 

We're afraid our daughter might sell one of the two rental properties she would inherit.

ask paul clitheroe stop daughter wasting inheritance

Is there some way of preventing that from happening that we can include in our will, so that she can continue earning rental income for the rest of her life?

Also, we didn't understand the testamentary trusts and three tranches that you wrote about. Would you please explain these? - Kevin

I am glad you asked, Kevin!

I'm no lawyer, so I would ask you to go and see one to get this sorted in your estate, but if you wanted to you could establish in your will that your assets, properties, shares, cash or whatever go to a testamentary trust for your children.

A solicitor would probably suggest one for each child, but that I will leave to an expert.

The trust may say, if that is what you want, that the kids simply get the income from the assets distributed to them. This is totally up to you.

But I must admit to quite liking the "three tranches" idea.

Here, you might nominate that the trust distributes, after your death, one third of the value in the trust when a child is a certain age, then another third when older. The final third is distributed when the child is older again.

You do need a bit of a sense of humour for dealing with our money after we are dead.

But the theory here is that an adult child might lose tranche one. That is bad. But some years later, they get another tranche. If they lose that, that is also bad.

But some years later they get the final third. If at this stage they lose it again, we all throw our hands in the air and give up. We've done all we can beyond the grave.

For a family or individual with good assets like you, a testamentary trust may make a lot of sense, or it may not. What is valuable is the ability to protect those you know best, your own kids.

Please chat to a good solicitor.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
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Money magazine
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June 1, 2022 11.50am

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Doug Anderson
June 5, 2022 4.35pm

Perhaps sell the rental properties now, enjoy your retirement worry free, and be happy that you might help two young families buy their first home?