Protecting Your Child’s Inheritance
As a parent, you want to protect your child from harm. However, it is not always easy to foresee what the future may hold for them. As the saying goes, sometimes the best defense is a good offense. Estate planning for a future inheritance is no different. A properly drafted trust can help proactively plan against possible obstacles in transferring your wealth to your children.
How can a trust help protect you and your family? Using a trust to pass your wealth can provide many benefits, with asset protection being one of them. When you design your estate plan, you have the ability to choose to limit your child’s access to the assets using specific trust provisions. For example, you could limit principal distributions for health and education, but allow for income on an annual basis. These provisions allow the trust to not be fully owned by your child which provides asset protection.
You may wonder if your children will really have to worry about protecting their assets. Well, divorce is one of the many obstacles that could impact your wealth transferring to your children. With high divorce rates, it is possible that your children may have to deal with the process of separating their assets. Typically, if your children keep their inheritance as separate property and they do not commingle it with marital property, the inheritance remains the child’s after the divorce. However, it may be difficult or the child may inadvertently commingle their inheritance. Therefore, if your goal is to make sure the child, and possibly grandchildren, receive their inheritance, you may want to reconsider leaving it outright and trust-free.
Another consideration in keeping your child’s inheritance in trust is the possibility of lawsuits and creditors. Everyday activities have the potential of putting a person at risk for being liable in a lawsuit. For example, car accidents could potentially harm your child’s inheritance if they are found liable. Keeping a child’s inheritance in trust, and out of their ownership, can help protect the assets from being subject to lawsuit and creditor claims.
It is important for your estate plan to fit your needs, so work with an estate attorney on drafting a plan that will allow you to meet your legacy goals. If asset protection for your family is important to you, consider using a trust to protect against future claims, and educate your loved ones on your intentions, because while you can’t predict the future, you can prepare for it.