The top three risks that parents worry about are: Divorce, Opportunists, and Lawsuits. Many clients are concerned about the son-in-law and daughter-in-law divorcing their child and walking away with a big chunk of their estate. And why shouldn’t they worry? With a divorce rate in America topping every other country, the chances of your kids having a long and happy marriage are not good. Parents also worry that someone will target their kids for get rich quick schemes, foolish financial investments, or even some well-planned scam. Finally, there is the real prospect that your kids could get sued with some judgment creditor walking off with your estate.
The question for today is, can you do anything to protect those assets by proper estate planning? When you give the inheritance outright to your children after you’re gone, there is nothing you can do to protect those assets or your children. They are fair game once control passes from the parents into the hands of your heirs. Yet almost every estate plan drafted the traditional way delivers the assets straight into the hands of the children regardless of whether the child is ready for that wealth or not. This is what is commonly referred to as Divide, Dump, and Dissipate. Can you spell Corvette?
Let’s start with divorce protection. Our example is Susan’s lazy husband, Jason. Bill and Mary never liked him, and despite the fact that they love their two grandchildren, they felt like Jason was bad news. He has a hard time holding down a job and has never been very ambitious. Susan has always been the main support for the family. Bill and Mary’s estate plan called for an equal division of the assets once Bill and Mary were gone.
After the assets were divided, each share was handed to the kids, Susan and John, in one lump sum. Once Susan received the money from mom and dad, she deposited all the money she inherited in a joint account with her husband, Jason. About a year after Bill and Mary’s death, Susan finally has enough of Jason’s behavior and files for a divorce. How much of Susan’s inheritance will Jason walk away with? For those of you that guessed about half, you’re right. So in one quick move, one half of Susan’s inheritance is gone, and into the hands of a guy Bill and Mary never liked.
How many of you know a situation like this? Believe me, it happens all the time. Can our planning do any better? Can we keep Susan’s inheritance in the family, even in the face of a divorce? The answer is yes!
Let’s look at putting Susan’s share into a Family Access Trust. Susan is named as the Trustee. That means she has the power to manage all of her assets. She is also the sole beneficiary, which gives her the right to spend the money or use the assets any time she wants. Well, you might be asking, “why keep it in Trust if she can do anything she wants with it?”
The reason is very simple. All the assets in the Family Access Trust are clearly defined as Susan’s inheritance. They are not commingled with any assets belonging to Susan and Jason. In the event of a divorce, Susan’s inheritance is not part of the marital estate that the court gets to divide. It stays separate and Jason will never touch Susan’s gifts from her parents. That certainly must have made Bill and Mary happy before they died, knowing everything was safe.
In subsequent articles, I will cover the Family Incentive Trust and the Family Sentry Trust and show you how you can protect assets from Opportunists and Lawsuits and further benefit your family for generations to come.
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